California Institute of Technology
Pasadena, CA 91125
NBER Working Papers and Publications
|October 2016||The Effects of Income Mobility and Tax Persistence on Income Redistribution and Inequality|
with Thomas R. Palfrey: w22759
We explore the effect of income mobility and the persistence of redistributive tax policy on the level of redistribution in democratic societies. An infinite-horizon theoretical model is developed, and the properties of the equilibrium tax rate and the degree of after-tax inequality are characterized. Mobility and stickiness of tax policy are both negatively related to the equilibrium tax rate. However, neither is sufficient by itself. Social mobility has no effect on equilibrium taxes if tax policy is voted on in every period, and tax persistence has no effect in the absence of social mobility. The two forces are complementary. Tax persistence leads to higher levels of post-tax inequality, for any amount of mobility. The effect of mobility on inequality is less clear-cut and depends on th...
|February 2014||Equilibrium Tax Rates and Income Redistribution: A Laboratory Study|
with Thomas R. Palfrey: w19918
This paper reports results from a laboratory experiment that investigates the Meltzer-Richard model of equilibrium tax rates, inequality, and income redistribution. We also extend that model to incorporate social preferences in the form of altruism and inequality aversion. The experiment varies the amount of inequality and the collective choice procedure to determine tax rates. We report four main findings. First, higher wage inequality leads to higher tax rates. The effect is significant and large in magnitude. Second, the average implemented tax rates are almost exactly equal to the theoretical ideal tax rate of the median wage worker. Third, we do not observe any significant differences in labor supply or average implemented tax rates between a direct democracy institution and a represe...
Published: Marina Agranov & Thomas R. Palfrey, 2015. "Equilibrium tax rates and income redistribution: A laboratory study," Journal of Public Economics, vol 130, pages 45-58. citation courtesy of