Heterogeneity and Government Revenues: Does Tax Progressivity Matter?

Martin López Daneri, Gustavo Ventura and Nezih Guner
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Martin López Daneri: Central Bank of Chile
Gustavo Ventura: Arizona State University

No 644, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: We quantitatively investigate the capacity to collect revenue when the government is constrained to use non-linear (progressive) income taxes. We develop a life-cycle growth model with individual heterogeneity and endogenous labor supply, and explore the degree of tax progressivity that can be sustained in order to finance different levels of government consumption across steady-state equilibria. We find that for the current tax structure of the U.S., the government can increase revenues by adopting a flatter tax schedule. We also find that the revenue-maximizing level of progressivity declines as required government revenues increase.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:644

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