The optimal distribution of the tax burden over the business cycle

Angelopoulos, K. , Asimakopoulos, S. and Malley, J. (2019) The optimal distribution of the tax burden over the business cycle. Macroeconomic Dynamics, 23(6), pp. 2298-2337. (doi: 10.1017/S1365100517000700)

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This paper analyzes optimal capital and labor income taxation for households differentiated by labor skill, income, and wealth, under a balanced government budget, over the business cycle. A model incorporating capital–skill complementarity in production and differential access to labor and capital markets is developed to capture the cyclical characteristics of the US economy, as well as the empirical observations on wage (skill premium) and wealth inequality. We find that optimal taxes for middle-income households are more volatile than the remaining taxes. Moreover, the government re-allocates the total tax burden in bad times so that the share of total tax revenue paid by middle-income households rises. This share also rises for low-income households but by significantly less, whereas the tax share for skilled households falls.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Malley, Professor Jim and Angelopoulos, Dr Konstantinos and Asimakopoulos, Mr Stylianos
Authors: Angelopoulos, K., Asimakopoulos, S., and Malley, J.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Macroeconomic Dynamics
Publisher:Cambridge University Press
ISSN (Online):1469-8056
Published Online:19 September 2017
Copyright Holders:Copyright © 2017 Cambridge University Press
First Published:First published in Macroeconomic Dynamics 23(6): 2298-2337
Publisher Policy:Reproduced in accordance with the publisher copyright policy

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Project CodeAward NoProject NamePrincipal InvestigatorFunder's NameFunder RefLead Dept
512541Optimal taxation in heterogeneous agent dynamic general equilibrium models.James MalleyEconomic and Social Research Council (ESRC)ES/H021140/1BUS - ECONOMICS
577263Glasgow - ESRC Standard Research Transition Standard Quota DTGMary Beth KneafseyEconomic and Social Research Council (ESRC)ES/I902414/1RSI - RESEARCH STRATEGY & INNOVATION