Taxing the Rich? A Theory of Income and Wealth Ine quality
Abstract:
Recently, it has been argued that a progressive wealth tax may signific antly benefit the distribution of welfare in society with minimal adverse e ffects on real economic activity. This paper evaluates the merits of this v iew within a dynamic general equilibrium framework that microfounds empiric ally plausible income and wealth distributions as arising from a fundamenta l agency problem between managers and entrepreneurs, on the one hand, and c apital markets, on the other hand. In this framework, wealth taxes distort the effort that managers and entrepreneurs expend to create firm value, whi ch capital markets reward them for, by shifting their choice of projects to wards less productive ventures. When wealth taxes are broad-based enough to affect not just individuals at the top of the wealth distribution, who con tribute the most to firms' productivity, they help reduce inequality but de press capital accumulation and output in the economy. The model accounts we ll for the degree of income and wealth inequality observed in the United St ates, including the very different degrees of concentration of the distribu tions of income and wealth at the top. The model also implies a substantial output loss from wealth taxes of the magnitude currently being debated. Th e reduction in inequality that wealth taxes lead to would be achieved at a much lower cost by modestly increasing the progressivity of income taxes ra ther than by introducing progressive wealth taxes.
DTSTAMP:20260416T010323Z DTSTART:20250317T163000Z DTEND:20250317T180000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR