Open AccessSupply Side Interventions and Redistribution *
Author(s) -
GarciaMilà Teresa,
Marcet Albert,
Ventura Eva
Publication year - 2010
Publication title -
the economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.683
H-Index - 160
eISSN - 1468-0297
pISSN - 0013-0133
DOI - 10.1111/j.1468-0297.2009.02333.x
Subject(s) - garcia , redistribution (election) , supply side , psychological intervention , political science , library science , sociology , law , art , humanities , medicine , economics , computer science , nursing , politics , microeconomics
We evaluate the effect on welfare of shifting the burden of capital income taxes to labour taxes in a dynamic equilibrium model with heterogeneous agents and constant tax rates. We calibrate and simulate the economy; we find that lowering capital taxes has two effects: it increases efficiency in terms of aggregate production and it redistributes wealth in favour of those agents with a low wage/wealth ratio. When the parameters of the model are calibrated to match the distribution of income in terms of the wage/wealth ratio, the redistributive effect dominates, and agents with a high wage/wealth ratio would experience a large loss in utility if capital income taxes were eliminated.