Optimal tax progressivity: An analytical framework

Arbeitspapier

What shapes the optimal degree of progressivity of the tax and transfer system? On the one hand, a progressive tax system can counteract inequality in initial conditions and substitute for imperfect private insurance against idiosyncratic earnings risk. At the same time, progressivity reduces incentives to work and to invest in skills, and aggravates the externality associated with valued public expenditures. We develop a tractable equilibrium model that features all of these trade-offs. The analytical expressions we derive for social welfare deliver a transparent understanding of how preferences, technology, and market structure parameters influence the optimal degree of progressivity. A calibration for the U.S. economy indicates that endogenous skill investment, flexible labor supply, and the externality linked to valued government purchases play quantitatively similar roles in limiting desired progressivity.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: IFS Working Papers ; No. W14/27

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Distribution: General ; Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data) ; Taxation, Subsidies, and Revenue: General ; Publicly Provided Goods: General ; Time Allocation and Labor Supply ; Human Capital; Skills; Occupational Choice; Labor Productivity
• Thema: Progressivity ; Income Distribution ; Skill Investment ; Labor Supply ; Partial Insurance ; Valued Government Expenditures ; Welfare

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Heathcote, Jonathan ; Storesletten, Kjetil ; Violante, Giovanni L.
• Ereignis: Veröffentlichung
• (wer): Institute for Fiscal Studies (IFS)
• (wo): London
• (wann): 2014

Weitere Informationen

• DOI: doi:10.1920/wp.ifs.2014.1427
• Handle: http://hdl.handle.net/10419/119560
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ