Negative income taxes, inequality and poverty

Constantine Angyridis and Brennan Thompson ()

Canadian Journal of Economics/Revue canadienne d'économique, 2016, vol. 49, issue 3, 1016-1034

Abstract: We use a neoclassical growth model with heterogeneous agents to analyze the redistributive effects of a negative income tax system, which combines a flat rate tax with a fully refundable credit (“demogrant”). We show that changing the demogrant‐to‐output ratio causes significant changes in the distribution of income. Specifically, we find that increasing the demogrant‐to‐output ratio sharply reduces the level of inequality as well as both relative and absolute poverty (all measured in terms of post‐tax total income). However, these reductions in inequality and poverty come at the expense of a significant reduction in output. Impôts négatifs sur le revenu, inégalité, et pauvreté. On utilise un modèle néo‐classique de croissance avec agents hétérogènes pour analyser les effets de redistribution d’un régime fiscal d’impôt négatif sur le revenu qui combine un taux d’imposition fixe accompagné de crédits d’impôt (demogrants) pleinement remboursables. On montre que changer le ratio demogrants/output modifie la distribution du revenu de manière significative. En particulier, modifier ce ratio dramatiquement réduit le niveau d’inégalité tout autant que la pauvreté absolue et relative (mesurées en termes de revenu total après impôt). Cependant ces réductions dans l’inégalité et la pauvreté ne s’accomplissent qu’au prix de réductions significatives dans le niveau d’output.

Date: 2016
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https://doi.org/10.1111/caje.12223

Related works:
Journal Article: Negative income taxes, inequality and poverty (2016)
Working Paper: Negative Income Taxes, Inequality, and Poverty (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:canjec:v:49:y:2016:i:3:p:1016-1034

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