The distributional consequences of tax reforms under capital-skill complementarity

Angelopoulos, K., Fernandez, B. X. and Malley, J. R. (2014) The distributional consequences of tax reforms under capital-skill complementarity. Economica, 81(324), pp. 747-767. (doi:10.1111/ecca.12087)

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Abstract

This paper analyses wage inequality and the welfare effects of changes in capital and labour income tax rates for different types of agents. To achieve this, we develop a model that allows for capital–skill complementarity given non-uniform distributions of asset holdings and labour skills. We find that capital tax reductions lead to the highest aggregate welfare gains but are skill-biased and thus increase inequality. However, our analysis also shows that the inequality effects of capital tax reductions are lower over the transition period compared with the long run.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Malley, Professor James and Angelopoulos, Dr Konstantinos
Authors: Angelopoulos, K., Fernandez, B. X., and Malley, J. R.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Economica
Publisher:Wiley
ISSN:0013-0427
ISSN (Online):1468-0335
Copyright Holders:Copyright © 2014 The London School of Economics and Political Science
First Published:First published in Economica 81(324):747-767
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher

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Project CodeAward NoProject NamePrincipal InvestigatorFunder's NameFunder RefLead Dept
512541Optimal taxation in heterogeneous agent dynamic general equilibrium models.James MalleyEconomic & Social Research Council (ESRC)ES/H021140/1BUS - ECONOMICS