Efficient Redistribution

Corina Boar and Virgiliu Midrigan

No 27622, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What are the most efficient means of redistribution in an unequal economy? We answer this question by characterizing the optimal shape of non-linear income and wealth taxes in a dynamic general equilibrium model with uninsurable idiosyncratic risk. Our analysis reproduces the distribution of income and wealth in the United States and explicitly 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. Though allowing for increasing marginal income and wealth taxes raises welfare, the incremental gains are small due to strong behavioral and general equilibrium effects. This result is robust to changing household preferences, the distribution of ability, the planner’s preference for redistribution, as well as to explicitly modeling private business ownership and the ensuing heterogeneity in rates of return.

JEL-codes: E2 E6 H2 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pub
Note: EFG PE PR
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Published as Corina Boar & Virgiliu Midrigan, 2022. "Efficient Redistribution," Journal of Monetary Economics, .

Downloads: (external link)
http://www.nber.org/papers/w27622.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:27622

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w27622

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().