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Marginal Tax Rates and Income Inequality: A Quantitative-Theoretic Analysis

In this paper, we employ a quantified general equilibrium model to study the effects of changes in marginal income-tax rate structures on the distribution of income. Our approach builds on recent efforts by Fullerton and Rogers (1 993) in extending the well-known work of Auerbach and Kotlikoff (1987) to allow for many different cohort types, and hence a nontrivial endogenous distribution of income. In addition, we utilize (and describe) a solution algorithm that allows us to study the distributional consequences of distortions on labor and consumption arising from actual discrete rate structures taken from the U.S. tax code.

Suggested citation: Altig, David, and Charles Carlstrom, 1995. “Marginal Tax Rates and Income Inequality: A Quantitative-Theoretic Analysis,” Federal Reserve Bank of Cleveland, Working Paper no. 95-08.

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