Efficient redistribution

Corina Boar, Virgiliu Midrigan

    Research output: Contribution to journalArticlepeer-review

    Abstract

    What is the optimal shape of non-linear income and wealth taxes? We answer this question using a dynamic general equilibrium model with uninsurable idiosyncratic risk. Our analysis reproduces the distribution of income and wealth in the United States and 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. The incremental welfare gains from steeper marginal income and wealth taxes are small, especially when the planner has a strong preference for redistribution, due to strong behavioral and general equilibrium effects.

    Original languageEnglish (US)
    JournalJournal of Monetary Economics
    DOIs
    StateAccepted/In press - 2022

    Keywords

    • Inequality
    • Redistribution
    • Tax policy

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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