Technical Change, Wage Inequality, and Taxes | Zendy

Laurence Ales | Zendy; Musab Kurnaz | Zendy; Christopher Sleet | Zendy

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Technical Change, Wage Inequality, and Taxes

Author(s) -

Laurence Ales,

Musab Kurnaz,

Christopher Sleet

Publication year - 2015

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20140466

Subject(s) - economics , technical change , normative , wage inequality , labour economics , income distribution , inequality , distribution (mathematics) , wage , macroeconomics , mathematical analysis , philosophy , mathematics , epistemology , productivity

This paper considers the normative implications of technical change for tax policy design. A task-to-talent assignment model of the labor market is embedded into an optimal tax problem. Technical change modifies equilibrium wage growth across talents and the substitutability of talents across tasks. The overall optimal policy response is to reduce marginal income taxes on low to middle incomes, while raising those on middle to high incomes. The reform favors those in the middle of the income distribution, reducing their average taxes while lowering transfers to those at the bottom. (JEL D31, H21, H23, H24, J31, O33)

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