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.
Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.
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. https://doi.org/10.26509/frbc-wp-199508
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