The stationary wealth distribution under progressive taxation

The Dynamics of Growth and Income Inequality under Progressive Taxation

“…Using a somewhat different approach, Carroll and Young () show how a progressive tax structure can also lead to a long‐run nondegenerate wealth distribution if agents have a common rate of time preference but are heterogeneous in their labor productivity. In a subsequent paper, Carroll and Young () analyze the long‐run effects of changes in tax progressivity on a number of aggregates, including distributional measures.…”

The Piketty Transition

“…We can draw a picture of the steady state as the intersection of the "demand curve" corresponding to the right-hand-side of Equation 8 and a "supply curve" that links the aggregate capital/labor ratio (as chosen by households) to the return; see Figure 10. 10 We focus on measuring inequality using Lorenz curves and the Gini coefficient. We present in Figure 11 the Lorenz curves both for our model and for the recent US, using the Survey of Consumer Finances 2007 sample.…”

“…They are also not sensitive to allowing capitalists and workers to have different mean productivities. 10 We use standard numerical methods to solve for the steady state and the transitional dynamics; a technical appendix outlines the details and is available upon request.…”

The Piketty Transition

“…Thus, inequality as measured by Piketty ( Figures 20 and 21 show the Lorenz curves and transitional dynamics; the decrease in inequality occurs because there is less variance in wealth for the capitalists. 7 We also consider an increase in α, a form of capital-biased technical change; specifically, we consider what happens if α increases to 0.45 at the same time the variance of u goes to zero and g goes to zero. 8 Figure 22 shows the rightward shift in the demand curve that a rise in α generates.…”

“…Computing a transition in the Cagetti and DeNardi (2008) model is computationally more demanding due to a nontrivial market clearing condition for labor. 7 The "blip" in the dynamic path for the Gini coefficient is not a numerical artifact -it is an upward jump followed by a quick but continuous decline back to the previous transition path. We have not been able to figure out where this blip comes from, but it clearly does not affect the results we emphasize.…”