Efficient redistribution

Corina Boar and Virgiliu Midrigan

Journal of Monetary Economics, 2022, vol. 131, issue C, 78-91

Abstract: What is the optimal shape of non-linear income and wealth taxes? We answer this question using a dynamic general equilibrium model with uninsurable idiosyncratic risk. Our analysis reproduces the distribution of income and wealth in the United States and takes into account the long-lived transition dynamics after policy reforms. We find that a uniform flat tax on capital and labor income combined with a lump-sum transfer is nearly optimal. The incremental welfare gains from steeper marginal income and wealth taxes are small, especially when the planner has a strong preference for redistribution, due to strong behavioral and general equilibrium effects.

Keywords: Inequality; Redistribution; Tax policy (search for similar items in EconPapers)
JEL-codes: E2 E6 H2 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:131:y:2022:i:c:p:78-91

DOI: 10.1016/j.jmoneco.2022.07.003

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