Negative Income Taxes, Inequality, and Poverty

Constantine Angyridis () and Brennan Thompson ()
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Constantine Angyridis: Department of Economics, Ryerson University

No 34, Working Papers from Toronto Metropolitan University, Department of Economics

Abstract: We use a neoclassical growth model with heterogeneous agents to analyze the redistributive effects of a negative income tax system, which combines a flat rate tax with a fully refundable credit ("demogrant"). We show that changing the demogrant-to-output ratio causes significant changes in the distribution of income. Specifically, we find that increasing the demogrant-to-output ratio sharply reduces the level of inequality as well as both relative and absolute poverty (all measured in terms of post-tax total income). However, these reductions in inequality and poverty come at the expense of a significant reduction in output.

Keywords: negative income tax; flat tax; inequality; Lorenz dominance; relative poverty; heterogeneous agents (search for similar items in EconPapers)
Pages: 26 pages
Date: 2012-08, Revised 2015-08
New Economics Papers: this item is included in nep-ltv, nep-pbe and nep-pub
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Related works:
Journal Article: Negative income taxes, inequality and poverty (2016)
Journal Article: Negative income taxes, inequality and poverty (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:rye:wpaper:wp034

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