The Efficiency Cost of Increased Progressivity / Robert K. Triest.

Format:

Book

Author/Creator:

Triest, Robert K.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4535.

NBER working paper series no. w4535

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1993.

Summary:

Increases in income tax progressivity generally entail some efficiency cost due to increased distortion of individuals' labor supply decisions. This paper quantifies the magnitude of the efficiency cost of several policies which would increase the progressivity of the U.S. individual income tax. The analysis differs from previous work on this topic in allowing for complex nonlinear tax schedules similar to those which actually exist. The efficiency cost of increased progressivity is found to vary considerably with the type of tax reform considered. Expanding the earned income tax credit (EITC) is found to be a particularly efficient means of increasing progressivity. Using the labor supply parameters I consider most reasonable, I find that the efficiency cost of expanding the EITC financed by increased tax rates in the intermediated brackets is less than 20 cents per dollar transferred from the upper income groups to the lower income groups.

Notes:

Print version record

November 1993.