Equilibrium Tax Rates under Ex-ante Heterogeneity and Income-dependent Voting

Bo Hyun Chang, Yongsung Chang, Sun Bin Kim

Research output: Contribution to journalArticlepeer-review

Abstract

The standard models with incomplete markets (e.g. Aiyagari) have difficulty justifying the current income tax rates as an optimal or political equilibrium outcome. Given the highly skewed income distribution, the majority of the population would be in favor of raising taxes to a much higher level. We show that incorporating (i) the ex-ante heterogeneity of earnings and (ii) income-dependent voting behavior helps us to reconcile the large gap between the model and data.

Original languageEnglish
Pages (from-to)547-573
Number of pages27
JournalB.E. Journal of Macroeconomics
Volume22
Issue number2
DOIs
Publication statusPublished - 2022 Jun 1

Bibliographical note

Funding Information:
We would like to thank Arpad Abraham and two anonymous referees for helpful comments. This work is supported by grants from the National Research Foundation of Korea funded by the Korean government (NRF-2016S1A5A2A03926178).

Publisher Copyright:
© 2021 Walter de Gruyter GmbH, Berlin/Boston.

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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