Optimal Taxation and Investment-Specific Technological Change

Valter Nóbrega ()
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Valter Nóbrega: Nova School of Business and Economics

Notas Económicas, 2020, issue 51, 167-185

Abstract: In this paper, we look at the relationship between Investment Specific Technological Change (ISTC) and optimal level of labor income progressivity. We develop an incomplete markets overlapping generations model that matches relevant features of the US economy and find that the observed drop in the relative price of investment since the 1980’s leads optimal progressivity to increase. This result hinges on ISTC increasing the wage premium through an increase in the variance of the permanent component of labor income. This result is supported by recent findings in the literature that highlight the increasing role of the permanent component of labor income in the observed increase in income inequality.

Keywords: Optimal taxation; technological change; income inequality. (search for similar items in EconPapers)
JEL-codes: E24 E62 H21 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gmf:journl:y:2020:i:51:p:167:185

DOI: 10.14195/2183-203X_51_8

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