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Does a global wealth tax reduce inequality? When Piketty meets Mankiw

Tien Van Nguyen and Hoang Khieu ()

Research in Economics, 2020, vol. 74, issue 2, 119-130

Abstract: We investigate the effects of a wealth tax on consumption and wealth inequality in a standard small open economy model featuring labour income heterogeneity. We show that consumption inequality and wealth inequality are identical in the long run if consumption growth exceeds output growth. Under this condition, the wealth tax reduces long run inequality under two additional conditions. First, the difference between the rate of return on wealth and the growth rate, r−g, is higher than a positive threshold. Second, the tax rate is lower than a cap which rises in r−g but decreases in labour income heterogeneity.

Keywords: Wealth inequality; Consumption inequality; Wealth tax; r-g (search for similar items in EconPapers)
JEL-codes: C02 D31 E21 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.rie.2020.02.004

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Handle: RePEc:eee:reecon:v:74:y:2020:i:2:p:119-130