Does Growing Inequality Reduce Tax Progressivity? Should It?
Joel Slemrod () and
Jon Bakija ()
No 7576, NBER Working Papers from National Bureau of Economic Research, Inc
This paper explores the links between two phenomena of the past two decades: striking increase in the inequality of pre-tax incomes, and the failure of tax-and-transfer progressivity to increase. We emphasize the causal links going from inequality to progressivity, noting that optimal taxation theory predicts that growing inequality should increase progressivity. We discuss public choice alternatives to the optimal progressivity framework. The paper also addresses the opposite causal direction: that it is changes in taxation that have caused an apparent increase in inequality. Finally, we discuss the non-event-study' offered by the large changes in the distribution of income--with no major tax changes-- since 1995, and discuss its implications for the link between progressivity and inequality.
JEL-codes: H2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab, nep-pbe and nep-pub
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Published as Hassett, K. and R. G. Hubbard (eds.) Inequality and Tax Policy. Washington, DC: The AEI Press for the American Enterprise Institute, 2001.
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Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:7576
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