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Pareto Weights in Practice: Income Inequality and Tax Reform

Yongsung Chang (), Sun-Bin Kim () and Bo Hyun Chang
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Bo Hyun Chang: University of Rochester

No 224, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a quantitative, heterogeneous-agents general equilibrium model that reproduces the income inequalities of 31 countries in the Organization for Economic Co-operation and Development. Using this model, we compute the optimal income tax rate for each country under the equal-weight utilitarian social welfare function. We simulate the voting outcome for the utilitarian optimal tax reform for each country. Finally, we uncover the Pareto weights in the social welfare functions of each country that justify the current redistribution policy.

New Economics Papers: this item is included in nep-dge, nep-ltv, nep-pbe and nep-pub
Date: 2015
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