Heterogeneity and Government revenues: Higher taxes at the top?

Nezih Guner, Martin Lopez-Daneri, Gustavo Ventura

Research output: Contribution to journalArticleResearchpeer-review

19 Citations (Scopus)

Abstract

© 2016 Elsevier B.V. How effective is a more progressive tax scheme in raising revenues? We answer this question in a life-cycle economy with heterogeneity across households and endogenous labor supply. Our findings show that a tilt of the U.S. income tax schedule towards high earners leads to small increases in revenue. Maximal revenue in the long run is only 6.8% higher than in our benchmark – about 0.8% of initial GDP – while revenues from all sources increase by just about 0.6%. Our conclusions are that policy recommendations of this sort are misguided if the aim is to exclusively raise government revenue.
Original languageEnglish
Pages (from-to)69-85
JournalJournal of Monetary Economics
Volume80
DOIs
Publication statusPublished - 1 Jun 2016

Keywords

  • Labor supply
  • Progressivity
  • Taxation

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