scholarly journals An allegory of the political influence of the top 1%

2016 ◽  
Vol 18 (1) ◽  
pp. 85-96 ◽  
Author(s):  
Philippe De Donder ◽  
John E. Roemer
Keyword(s):  
Income Distribution ◽  
Political Influence ◽  
Comparative Statics ◽  
Majority Voting ◽  
Capital Income ◽  
Tax Rate ◽  
High Productivity ◽  
Lump Sum ◽  
Lobbying Effort ◽  
Average Utility

We study how rich shareholders use their political influence to deregulate firms that they own, thus skewing the income distribution towards themselves. Individuals differ in productivity and choose how much labor to supply. High productivity individuals also own shares in the productive sector and thus earn capital income. All individuals vote over a linear tax rate on (labor and capital) income whose proceeds are redistributed lump sum. Shareholders also lobby in order to ease the price cap imposed on the private firm. We first solve analytically for the Kantian equilibrium of this lobbying game together with the majority voting equilibrium over the tax rate. We then proceed to a comparative statics analysis of the model with the help of numerical simulations. We obtain that, as the capital income distribution becomes more concentrated among the top productivity individuals, increased lobbying effort generates efficiency as well as equity costs, with lower labor supply and lower average utility levels in society.

scholarly journals Taxing Capital? Not a Bad Idea After All!

2009 ◽  
Vol 99 (1) ◽  
pp. 25-48 ◽  
Author(s):  
Juan Carlos Conesa ◽  
Sagiri Kitao ◽  
Dirk Krueger
Keyword(s):  
Income Tax ◽  
Labor Income ◽  
Income Shocks ◽  
Capital Income ◽  
Overlapping Generations Model ◽  
Cycle Structure ◽  
Tax Rate ◽  
Average Household Income ◽  
Optimal Capital

We quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic, uninsurable income shocks and permanent productivity differences of households. The optimal capital income tax rate is significantly positive at 36 percent. The optimal progressive labor income tax is, roughly, a flat tax of 23 percent with a deduction of $7,200 (relative to average household income of $42,000). The high optimal capital income tax is mainly driven by the life-cycle structure of the model, whereas the optimal progressivity of the labor income tax is attributable to the insurance and redistribution role of the tax system. (JEL E13, H21, H24, H25)

Inequality

2020 ◽  
pp. 565-604
Author(s):  
Christopher Tsoukis
Keyword(s):  
Income Distribution ◽  
Endogenous Growth ◽  
Growth Models ◽  
Inequality Measurement ◽  
Capital Income ◽  
Representative Agent ◽  
Macroeconomic Models ◽  
Measurement Issues ◽  
Labour Share ◽  
Endogenous Growth Models

By whatever indicator it is assessed, inequality has been rising in recent years. This book considers it a macroeconomic issue and innovates by including it among its topics. The chapter begins by reviewing evidence and facts on inequality, measurement issues, and the relation with poverty. The macroeconomic models of income distribution reviewed next include vintage models, endogenous growth models, and whether inequality can be accommodated in ‘representative-agent’ models. Attention then turns to ‘factor’ (labour-capital) income shares, which have also been changing recently, reviewing both the relevant analytics and the possible processes that underlie this change. The chapter concludes with recent debates on determinants of inequality, the evolution of the labour share (the ‘r-g’ question), and the future of income distribution.

Optimal Dynamic Carbon Taxes in a Climate–Economy Model with Distortionary Fiscal Policy

2019 ◽  
Author(s):  
Lint Barrage
Keyword(s):  
Fiscal Policy ◽  
Optimal Taxation ◽  
Carbon Tax ◽  
Natural Capital ◽  
Income Taxes ◽  
Carbon Taxes ◽  
Capital Income ◽  
Economy Model ◽  
Lump Sum ◽  
Distortionary Taxes

Abstract How should carbon be taxed as a part of fiscal policy? The literature on optimal carbon pricing often abstracts from other taxes. However, when governments raise revenues with distortionary taxes, carbon levies have fiscal impacts. While they raise revenues directly, they may shrink the bases of other taxes (e.g. by decreasing employment). This article theoretically characterizes and then quantifies optimal carbon taxes in a dynamic general equilibrium climate–economy model with distortionary fiscal policy. First, this article establishes a novel theoretical relationship between the optimal taxation of carbon and of capital income. This link arises because carbon emissions destroy natural capital: they accumulate in the atmosphere and decrease future output. Consequently, this article shows how the standard logic against capital income taxes extends to distortions on environmental capital investments. Second, this article characterizes optimal climate policy in sub-optimal fiscal settings where income taxes are constrained to remain at their observed levels. Third, this article presents a detailed calibration that builds on the seminal DICE approach but adds features essential for a setting with distortionary taxes, such as a differentiation between climate change production impacts (e.g. on agriculture) and direct utility impacts (e.g. on biodiversity existence value). The central quantitative finding is that optimal carbon tax schedules are 8–24% lower when there are distortionary taxes, compared to the setting with lump-sum taxes considered in the literature.

HOW COSTLY ARE BORROWING COSTS? AN ANALYSIS OF ALTERNATIVE FISCAL POLICIES DURING CRISES

2015 ◽  
Vol 21 (5) ◽  
pp. 1141-1157
Author(s):  
Inci Gumus
Keyword(s):  
Borrowing Constraints ◽  
Labor Income ◽  
Fiscal Policies ◽  
Capital Income ◽  
Tax Rate ◽  
Percentage Points ◽  
Tax Reduction ◽  
Labor Tax ◽  
The Government ◽  
Spending Cuts

Financial crises lead to substantial declines in output and consumption in emerging markets. The fact that fiscal policy is procyclical in these countries shows that the effects of a crisis are exacerbated by spending cuts and tax increases, which are usually attributed to borrowing constraints they face in bad times. This paper quantitatively analyzes the costs of reduced borrowing during crises by studying the effects of expansionary fiscal policies that would have been possible to implement, had the government been able to borrow more. The model shows that a 25% reduction of taxes on labor income, capital income, and consumption during the 1997 Korean crisis would have required an additional borrowing of 4.10% of GDP, while increasing output and consumption by 5.23 and 5.92 percentage points, respectively. When the effects of each tax rate are analyzed separately, labor tax reduction turns out to be more effective than the other policies.

Distance to hazard: an environmental policy with income heterogeneity

2016 ◽  
Vol 22 (1) ◽  
pp. 51-65
Author(s):  
Minoru Nakada
Keyword(s):  
Environmental Policy ◽  
Median Voter ◽  
Pollution Abatement ◽  
Pollution Source ◽  
Majority Voting ◽  
Tax Rate ◽  
Residential Proximity ◽  
Income Levels ◽  
Emissions Tax ◽  
Low Incomes

AbstractThis study examines whether voting by individuals of different income levels affects the stringency of environmental policy if their residential proximity to a pollution source is considered. A location model with heterogeneous agents is extended to include a single environmentally hazardous site at the edge of a linear city and the degree of damage from pollution is assumed to depend on the distance from this emissions site. The analysis demonstrates through majority voting that the equilibrium emissions tax rate is higher when the income level of the median voter is lower, because residents with low incomes reside near the hazardous site and thus benefit more from pollution abatement than residents with higher incomes.

Is exit tax a good idea for the taxman?

2018 ◽  
Vol 45 (4) ◽  
pp. 810-828
Author(s):  
Darong Dai
Keyword(s):  
Capital Accumulation ◽  
Design Methodology ◽  
Empirical Studies ◽  
Income Taxes ◽  
Sales Tax ◽  
Tax Revenue ◽  
Labor Income ◽  
Capital Income ◽  
Content Type ◽  
Lump Sum

Purpose The purpose of this paper is to study whether it is a rational choice for a tax authority to impose an exit tax on capitalists. Design/methodology/approach The tax authority chooses a lump-sum exit tax to maximize a weighted objective of expected tax revenue and expected tax horizon. The tax revene consists of capital income taxes and exit taxes. Capitalists are motivated by sustainable capital accumulation and hence maximize the terminal capital stock. Findings The author finds that the objective function of the tax authority is strictly increasing in the exit tax, which holds for extensions with sales tax, labor income tax or proportional exit tax, and hence equilibrium exit tax is equal to an exogenous upper bound. Originality/value To the author’s knowledge, no existing literature investigates this issue theoretically, and hence the current paper represents the first attempt. The author hopes this theoretical analysis can trigger related empirical studies.

scholarly journals The elasticity of taxable income in Spain: 1999–2014

SERIEs ◽  
2019 ◽  
Vol 10 (3-4) ◽  
pp. 281-320 ◽  
Author(s):  
Miguel Almunia ◽  
David Lopez-Rodriguez
Keyword(s):  
Estimation Methods ◽  
Tax Rates ◽  
Personal Income Tax ◽  
Capital Income ◽  
Tax Rate ◽  
Taxable Income ◽  
Elasticity Of Taxable Income ◽  
Marginal Tax Rates ◽  
Tax Deductions ◽  
The One

Abstract We study how taxable income responds to changes in marginal tax rates, using as a main source of identifying variation three large reforms to the Spanish personal income tax implemented in the period 1999–2014. The most reliable estimates of the elasticity of taxable income (ETI) with respect to the net-of-tax rate for this period are between 0.45 and 0.64. The ETI is about three times larger for self-employed taxpayers than for employees and larger for business income than for labor and capital income. The elasticity of broad income is smaller, between 0.10 and 0.24, while the elasticity of some tax deductions such as the one for private pension contributions exceeds one. Our estimates are similar across a variety of estimation methods and sample restrictions and also robust to potential biases created by mean reversion and heterogeneous income trends.

Capital Income Taxation, Economic Growth and Heterogeneity in the Motivation to Give

2012 ◽  
Vol 13 (3) ◽  
pp. 291-306
Author(s):  
Lars Kunze
Keyword(s):  
Economic Growth ◽  
Income Tax ◽  
Overlapping Generations ◽  
Income Taxation ◽  
Capital Income ◽  
Capital Income Taxation ◽  
Overlapping Generations Model ◽  
Tax Rate ◽  
Motivation To Give ◽  
The Relationship

Abstract This study provides a comprehensive analysis of the relationship between capital income taxation and economic growth within an overlapping generations model when individuals may bequeath wealth. The altruistic concern is modeled as a synthesis of joy-of-giving and family altruism so that individuals may derive utility from the amount of bequest itself and by providing children with a disposable income later on in life. Using this framework, it is shown that, in contrast to the existing literature, increasing the capital income tax rate may well enhance growth under operative bequests.

A Pareto upper tail for capital income distribution

2018 ◽  
Vol 492 ◽  
pp. 403-417 ◽  
Author(s):  
Bogdan Oancea ◽  
Dan Pirjol ◽  
Tudorel Andrei
Keyword(s):  
Income Distribution ◽  
Capital Income
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