Soon they will seek to cancel the rooftops

Based on a simple and intuitive point, the title of the paper is: “How Should Tax Progressivity Respond to Rising Income Inequality?”, and the answer is something you hardly ever hear acknowledged:

When facing shifts in the income distribution like those observed in the US, a utilitarian planner chooses higher progressivity in response to larger residual inequality but lower progressivity in response to widening skill price dispersion reflecting technical change. Overall, optimal progressivity is approximately unchanged between 1980 and 2016. We document that the progressivity of the actual US tax and transfer system has similarly changed little since 1980, in line with the model prescription.

That is from a new NBER working paper by Jonathan Heathcote, Kjetil Storesletten, and Giovanni L. Violante.


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