Heterogeneity and Government revenues: Higher taxes at the top?

Nezih Guner, Martin Lopez-Daneri, Gustavo Ventura

Research output: Contribution to journalArticle

10 Scopus citations

Abstract

How effective is a more progressive tax scheme in raising revenues? We answer this question in a life-cycle economy with heterogeneity across households and endogenous labor supply. Our findings show that a tilt of the U.S. income tax schedule towards high earners leads to small increases in revenue. Maximal revenue in the long run is only 6.8% higher than in our benchmark – about 0.8% of initial GDP – while revenues from all sources increase by just about 0.6%. Our conclusions are that policy recommendations of this sort are misguided if the aim is to exclusively raise government revenue.

Original languageEnglish (US)
Pages (from-to)69-85
Number of pages17
JournalJournal of Monetary Economics
Volume80
DOIs
StatePublished - Jun 1 2016

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Keywords

  • Labor supply
  • Progressivity
  • Taxation

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

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