Efficient Redistribution / Corina Boar, Virgiliu Midrigan.

Format:

Book

Author/Creator:

Boar, Corina.

Contributor:

National Bureau of Economic Research.

Midrigan, Virgiliu.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27622.

NBER working paper series no. w27622

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

What are the most efficient means of redistribution in an unequal economy? We answer this question by characterizing the optimal shape of non-linear income and wealth taxes in a dynamic general equilibrium model with uninsurable idiosyncratic risk. Our analysis reproduces the distribution of income and wealth in the United States and explicitly takes into account the long-lived transition dynamics after policy reforms. We find that a uniform flat tax on capital and labor income combined with a lump-sum transfer is nearly optimal. Though allowing for increasing marginal income and wealth taxes raises welfare, the incremental gains are small due to strong behavioral and general equilibrium effects. This result is robust to changing household preferences, the distribution of ability, the planner's preference for redistribution, as well as to explicitly modeling private business ownership and the ensuing heterogeneity in rates of return.

Notes:

Print version record

July 2020.