The distributional consequences of supply-side reforms in general equilibrium

Konstantinos Angelopoulos (), Bernardo Fernandez and Jim Malley

Working Papers from Business School - Economics, University of Glasgow

Abstract: This paper addresses the issue on whether tax reforms consistent with lower public debt-to-GDP in the long-run can lead to a more efficient and equitable economy. To this end we solve a heterogeneous agent model comprised of a government, a representative capitalist and representative skilled and unskilled workers, under both rational expectations and adaptive learning. Our main findings are that (i) reductions in capital taxation, while beneficial at the aggregate level, lead to increased inequality mainly due to the substitutability of un- skilled labour and capital; (ii) a fall in taxation for skilled labour is Pareto improving, which is largely explained by its complementarity with the other factor inputs; (iii) all agents would prefer increasing the tax rate on capital to increasing the tax rate on skilled and un- skilled labour since it leads to relatively lower welfare losses; and (iv) heterogeneity in initial beliefs under adaptive learning quantitatively matters for welfare.

Keywords: tax reform; structural heterogeneity; inequality; adaptive learning (search for similar items in EconPapers)
JEL-codes: E25 E62 (search for similar items in EconPapers)
Date: 2010-11, Revised 2012-06
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: The Distributional Consequences of Supply-Side Reforms in General Equilibrium (2011)
Working Paper: The Distributional Consequences of Supply-Side Reforms in General Equilibrium (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2010_26

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