Heterogeneity and government revenues: does tax progressivity matter?

Available from: 
October 2013
Paper author(s): 
Martin Lopez-Daneri, Central Bank of Chile
Nezih Guner, Universitat Autonoma de Barcelona
Gustavo Ventura, Arizona State University
Macroeconomics - Economic growth - Monetary Policy
Fiscal Policy - Public and Welfare Economics

We quantitatively investigate the capacity to collect revenue when the government is constrained to use non-linear (progressive) income taxes. We develop a life-cycle growth model with individual heterogeneity and endogenous labor supply, and explore the degree of tax progressivity that can be sustained in order to finance different levels of government consumption across steady-state equilibria. We find that for the current tax structure of the U.S., the government can increase revenues by adopting a flatter tax schedule. We also find that the revenue-maximizing level of progressivity declines as required government revenues increase.


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Research section: 
Lacea 2013 annual meeting
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