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Ex-ante Heterogeneity and Equilibrium Redistribution(Preliminary)

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

No 2016rwp-93, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: The standard models have diculty in justifying the current labor income tax rate in the U.S. The optimal tax rate is much higher than the current rate (e.g., Piketty and Saez (2013)). A majority of the population should be also in favor of raising taxes, as the income distribution is highly skewed. We show that the political equilibrium is actually close to the current tax rate, once we take account the ex-ante heterogeneity in household earnings (e.g., Guvenen (2009)) and income-dependent voting behavior, (e.g., Mahler (2008)) into the standard incomplete-markets model.

Keywords: Optimal Tax; Ex-ante Heterogeneity; Voting Turnout Rates (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2016-10
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