Income tax progressivity, growth, income inequality and welfare

This paper analyzes the effects of personal income tax progressivity on long-run economic growth, income inequality and social welfare. The quantitative implications of income tax progressivity increments are illustrated for the US economy under three main headings: individual effects (reduced labor supply and savings, and increased dispersion of tax rates); aggregate effects (lower GDP growth and lower income inequality); and welfare effects (lower dispersion of consumption across individuals and higher leisure levels, but also lower growth of future consumption). The social discount factor proves to be crucial for this third effect: a higher valuation of future generations' well-being requires a lower level of progressivity. Additionally, if tax revenues are used to provide a public good rather than just being discarded, a higher private valuation of such public goods will also call for a lower level of progressivity.

Unemployment rates and population changes in Spain

Published as an article in: Journal of Applied Economics, 2004, vol. VII, pages 47-76.

Which policy option can be more cost-effective in promoting the use of energy efficient appliances in Europe? A comparison of energy taxes, subsidies, tax credits and bans.

4 p.

Income Taxation and Growth in an OLG Economy: Does Aggregate Uncertainty Play any Role?

We analyze the effects of capital income taxation on long-run growth in a stochastic, two-period overlapping generations economy. Endogenous growth is driven by a positive externality of physical capital in the production sector that makes firms exhibit an aggregate technology in equilibrium. We distinguish between capital income and labor income, and between attitudes towards risk and intertemporal substitution of consumption. We show necessary and sufficient conditions such that i) increments in the capital income taxation lead to higher equilibrium growth rates, and ii) the effect of changes in the capital income tax rate on the equilibrium growth may be of opposite signs in stochastic and in deterministic economies. Such a sign reversal is shown to be more likely depending on i) how the intertemporal elasticity of substitution compares to one, and ii) the size of second- period labor supply. Numerical simulations show that for reasonable values of the intertemporal elasticity of substitution, a sign reversal shows up only for implausibly high values of the second- period’s labor supply. The conclusion is that deterministic OLG economies are a good approximation of the effect of taxes on the equilibrium growth rate as in Smith (1996).

From Shadow to Green: Linking Environmental Fiscal Reforms and the Informal Economy

47 p.