Optimal Taxation and Investment‑ Specific Technological Change

Authors

  • Valter Nóbrega Nova School of Business and Economics

DOI:

https://doi.org/10.14195/2183-203X_51_8

Keywords:

Optimal taxation, technological change, income inequality

Abstract

In this paper, we look at the relationship between Investment Specific Technological Change (ISTC) and optimal level of labor income progressivity. We develop an incomplete markets overlapping generations model that matches relevant features of the US economy and find that the observed drop in the relative price of investment since the 1980’s leads optimal progressivity to increase. This result hinges on ISTC increasing the wage premium through an increase in the variance of the permanent component of labor income. This result is supported by recent findings in the literature that highlight the increasing role of the permanent component of labor income in the observed increase in income inequality.

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Published

2020-12-11

Issue

No. 51 (2020): Special Issue: Essays on Inequality, Structural Change and Optimal Taxation

Section

Articles

License

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows sharing the work with recognition of authorship and initial publication in Antropologia Portuguesa journal.