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Working Paper

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 T. Carlstrom. 1995. “Marginal Tax Rates and Income Inequality: A Quantitative-Theoretic Analysis.” Federal Reserve Bank of Cleveland, Working Paper No. 95-08.