Supply Side Interventions and Redistribution

Authors: Garcia-Milà, Teresa¹; Marcet, Albert²; Ventura, Eva¹

Source: The Economic Journal, Volume 120, Number 543, March 2010 , pp. 105-130(26)

Buy & download fulltext article:

Price: $48.00 plus tax (Refund Policy)

Abstract:

We evaluate the effect on welfare of shifting the burden of capital income taxes to labour taxes in a dynamic equilibrium model with heterogeneous agents and constant tax rates. We calibrate and simulate the economy; we find that lowering capital taxes has two effects: it increases efficiency in terms of aggregate production and it redistributes wealth in favour of those agents with a low wage/wealth ratio. When the parameters of the model are calibrated to match the distribution of income in terms of the wage/wealth ratio, the redistributive effect dominates, and agents with a high wage/wealth ratio would experience a large loss in utility if capital income taxes were eliminated.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1468-0297.2009.02333.x

Affiliations: 1: Universitat Pompeu Fabra and Barcelona GSE 2: Universitat Autònoma de Barcelona, CEPR and Barcelona GSE

Publication date: 2010-03-01