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American Economic Review: Vol. 89 No. 5 (December 1999)

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Marginal Tax Rates and Income Inequality in a Life-Cycle Model

Article Citation

Altig, David, and Charles T. Carlstrom. 1999. "Marginal Tax Rates and Income Inequality in a Life-Cycle Model." American Economic Review, 89(5): 1197-1215.

DOI: 10.1257/aer.89.5.1197

Abstract

In this paper we study the quantitative impact of marginal tax rates on the distribution of income. Our methodology builds on computable general-equilibrium framework. We find that distortions from marginal tax rate changes of the sort implied by the Tax Reform Act of 1986 have sizable effects on income inequality in a reasonably quantified life-cycle setting: In our model rate changes alone capture half the increase in the pretax Gini that actually occurred between 1984 and 1989.

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Authors

Altig, David (Federal Reserve Bank of Cleveland)
Carlstrom, Charles T. (Federal Reserve Bank of Cleveland)

JEL Classifications

H23: Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H31: Fiscal Policies and Behavior of Economic Agents: Household
D31: Personal Income, Wealth, and Their Distributions


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