Heterogeneous Labor Skills, The Median Voter and Labor Taxes

Facundo Piguillem and Anderson Schneider
Additional contact information
Anderson Schneider: Infinium Capital Management

Review of Economic Dynamics, 2013, vol. 16, issue 2, 332-349

Abstract: This paper analyzes the median voter's most preferred sequences of labor taxes in the standard neoclassical growth model. We consider an infinite horizon economy in which agents are heterogeneous with respect to both initial wealth and labor skills. We start by providing a set of sufficient conditions for the existence of a Condorcet Winner. We then characterize the most preferred tax sequence by the median agent. First, we show that marginal labor taxes depend directly on the absolute value of the distance between the median and the mean value of the skills' distribution. Second, we find that in contrast to the intuition stemming from standard representative agent economies, labor taxes are more volatile and counter-cyclical taxation (e.g., increasing taxes in recession) might be optimal depending on the correlation between inequality and TFP. To assess the quantitative relevance of these findings, we calibrate the model economy to six countries and find that countercyclical labor taxation is optimal for all but the US. (Copyright: Elsevier)

Keywords: Median voter; Business cycle; Labor taxes; Pro-cyclical fiscal policy; Tax shifting (search for similar items in EconPapers)
JEL-codes: D7 E6 E62 H0 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2013.02.001
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Heterogeneous Labor Skills, The Median Voter and Labor Taxes" (2013)
Working Paper: Heterogeneous Labor Skills, The Median Voter and Labor Taxes (2009)
Working Paper: Heterogeneous Labor Skills, The Median Voter and Labor Taxes (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:11-142

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1010/j.red.2013.02.001

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().