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Diversity and Economic Performance in a Model with Progressive Taxation

Wang, Wei and Suen, Richard M. H. (2017): Diversity and Economic Performance in a Model with Progressive Taxation.

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Abstract

This paper examines the relation between diversity and long-term economic performance in a dynamic general equilibrium model where consumers differ ex ante in time preference and labour productivity. We show that changing the distribution of these characteristics will affect the steady state by distorting the composition of aggregate labour supply. The exact nature of this effect depends on the shape of the individual labour supply function. Changing the distribution of time preference will also affect the distribution of marginal tax rates across individuals. The aggregate outcome of this is determined by the concavity or convexity of the marginal tax function.

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