Veranstaltung
22
MAI 2017

14:15 - 15:45
IWH Research Seminar

The Impact of Taxes on Income Mobility

This paper investigates how taxes affect relative mobility in the income distribution in the US. Household panel data drawn from the PSID between 1967 and 1996 is employed to analyse the relationship between marginal tax rates and the probability of staying in the same income decile.

Wer
Mario Alloza  (Bank of Spain, Madrid)
Wo
IWH conference room
Mario Alloza

Zur Person

Mario Alloza is an Economist at the Research Department of the Bank of Spain and a member of the Centre for Macroeconomics. His research focuses on applied macroeconomics and fiscal policy.

This paper investigates how taxes affect relative mobility in the income distribution in the US. Household panel data drawn from the PSID between 1967 and 1996 is employed to analyse the relationship between marginal tax rates and the probability of staying in the same income decile. Exogenous variation in marginal tax rates is identified by using counterfactual rates based on legislated changes in the tax schedule. I find that higher marginal tax rates reduce income mobility. An increase in one percentage point in marginal tax rates causes a decline of around 0.8% in the probability of changing to a different income decile. Tax reforms that reduce marginal rates by 7 percentage points are estimated to account for around a tenth of the average movements in the income distribution in a year. Additional results suggest that the effect of taxes on income mobility differs according to the level of human capital and that it is particularly significant when considering mobility at the bottom of the distribution.

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