The Distributional Consequences of Tax Reforms under Market Distortions

Konstantinos Angelopoulos (), Wei Jiang and Jim Malley

No 3600, CESifo Working Paper Series from CESifo

Abstract: In this paper we examine the importance of imperfect competition in product and labour markets in determining the long-run welfare effects of tax reforms assuming agent heterogeneity in capital holdings. Each of these market failures, independently, results in welfare losses for at least a segment of the population, after a capital tax cut and a concurrent labour tax increase. However, when combined in a realistic calibration to the UK economy, they imply that a capital tax cut will be Pareto improving in the long run. Consistent with the theory of second-best, the two distortions in this context work to correct the negative distributional effects of a capital tax cut that each one, on its own, creates.

Keywords: market imperfections; heterogeneous agents; unemployment; tax reform (search for similar items in EconPapers)
JEL-codes: E24 E62 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The distributional consequences of tax reforms under market distortions (2011)
Working Paper: The distributional consequences of tax reforms under market distortions (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3600

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