We develop a quantitative heterogeneous-agents general equilibrium model that reproduces the income inequalities of 32 countries in the Organization for Economic Co-operation and Development. Using this model, we compute the optimal income tax progressivity and redistribution for each country under the equal-weight utilitarian social welfare function. A policy reform to adopt the optimal progressivity is supported by the majority of the population. Finally, we uncover the Pareto weights in the social welfare functions of each country that justify the current redistribution policy.
Bibliographical noteFunding Information:
We would like to thank Romans Pancs, Mark Bils, Andreas Hornstein, Yena Park, Maxim Troshkin, and seminar participants at Cornell, Connecticut, GRIPS, Kansas City Fed, IMF, Penn State, Richmond Fed, Rochester, Busan University, Korea University, Seoul National University, Yonsei, Bank of Korea, Society for Economic Dynamics (Warsaw) and Midwest Macro Meetings (St. Louis). This work was supported by grants from the National Research Foundation of Korea funded by the Korean Government ( NRF-2016-S1A5A2A03926178 ).
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All Science Journal Classification (ASJC) codes
- Economics and Econometrics