Brinca, Pedro and Duarte, João B. and Holter, Hans A. and Oliveira, João G. (2019): Investment-Specific Technological Change, Taxation and Inequality in the U.S.
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Abstract
Since 1980 the U.S. economy has experienced a large increase in income inequality. To explain this phenomenon we develop a life-cycle, overlapping generations model with uninsurable labor market risk, a detailed tax system and investment-specific technological change (ISTC). We calibrate our model to match key characteristics of the U.S. economy and study how ISTC, shifts in taxation, government debt and employment have contributed to the rise in income inequality. We find that these structural changes can account for close to one third of the observed increase in the post-tax income Gini. The main mechanisms in play are the rise in the wage premium of non-routine workers, resulting from capital-non-routine complementarity, as well as a reduction of the progressivity of the labor income tax schedule, which increases post-tax inequality. We show that ISTC alone accounts for roughly 15% of the change observed in post-tax income Gini, while the reduction in progressivity accounts for 16%.
Item Type: | MPRA Paper |
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Original Title: | Investment-Specific Technological Change, Taxation and Inequality in the U.S. |
Language: | English |
Keywords: | Income Inequality, Taxation, Automation |
Subjects: | E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials |
Item ID: | 91960 |
Depositing User: | Pedro Brinca |
Date Deposited: | 04 Feb 2019 15:52 |
Last Modified: | 23 Nov 2024 07:45 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/91960 |