Working Paper: NBER ID: w7576
Authors: Joel Slemrod; Jon Bakija
Abstract: This paper explores the links between two phenomena of the past two decades: striking increase in the inequality of pre-tax incomes, and the failure of tax-and-transfer progressivity to increase. We emphasize the causal links going from inequality to progressivity, noting that optimal taxation theory predicts that growing inequality should increase progressivity. We discuss public choice alternatives to the optimal progressivity framework. The paper also addresses the opposite causal direction: that it is changes in taxation that have caused an apparent increase in inequality. Finally, we discuss the non-event-study' offered by the large changes in the distribution of income--with no major tax changes-- since 1995, and discuss its implications for the link between progressivity and inequality.
Keywords: No keywords provided
JEL Codes: H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing income inequality (D31) | greater tax progressivity (H29) |
| changes in taxation (H29) | increased income inequality (D31) |
| increasing income inequality (D31) | changes in taxation (H29) |
| stock market fluctuations (G10) | income distribution (D31) |
| stock market fluctuations (G10) | tax progressivity (H29) |