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Earnings and Wealth Inequality and Income Taxation: Quantifying the Trade-Offs of Switching to a Proportional Income Tax in the U.S. Ohio

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dc.affiliation.dptoUC3M. Departamento de Economíaes
dc.contributor.authorCastañeda, Ana
dc.contributor.authorDíaz-Giménez, Javier
dc.contributor.authorRíos-Rull, José Víctor
dc.contributor.otherFederal Reserve Bank of Cleveland
dc.date.accessioned2009-08-24T09:17:38Z
dc.date.available2009-08-24T09:17:38Z
dc.date.issued1998
dc.description.abstractThis papaer quantifies the steady-state aggregate, distributinal and mobility effects of switching the U.S. to a proportional income tax system. As a perriquisite to the analysi, we propose a theory of earnings and wealth inequality capable of accounting quantitatively for the key aggregate and inequality facts of the U. S. economy. This theory is based on saving to smooth uninsured household-specific risk, for dynastic households that also have some life-cycle characteristics. A suitable calibration of our model economy replicates the U.S. growth facts, earnings and wealth distributions, the progressivity of the tax system and the size of the U.S. government. We also solve a similar model economy in which the government livies a proportional income tax to finance the same flow of government expenditures and public transfers. Our finding show that in this class of model worlds a switch from the U.S. tax system to a proporcional tax system implies the following trade-offs, i.) it increases efficiency as measured by aggregate output by 4,4%, ii. ) it increases inequality as measured by the Gini index of the wealth distribution by 10.4%, and iv.) it changes by little the mobility between the different earnings and wealth groups.
dc.format.mimetypeapplication/pdf
dc.identifier.urihttps://hdl.handle.net/10016/4970
dc.language.isoeng
dc.relation.ispartofseriesWorking paper
dc.relation.ispartofseries9814
dc.rights.accessRightsopen access
dc.subject.ecienciaEconomía
dc.titleEarnings and Wealth Inequality and Income Taxation: Quantifying the Trade-Offs of Switching to a Proportional Income Tax in the U.S. Ohio
dc.typeworking paper*
dspace.entity.typePublication
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