Could More Progressive Taxes Increase Income Inequality?

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2021-08-09 16:00:12

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By Laura Jackson, Assistant Professor of Economics, Bentley University; Christopher Otrok, Research Fellow, St. Louis Fed; and Michael T. Owyang, Assistant Vice President and Economist, St. Louis Fed

In a previous post, we discussed how raising tax progressivity can be expansionary. Tax progressivity determines the incidence of taxes across people with different incomes. More progressive taxes mean higher income tax rates for high-income individuals and lower income tax rates for low-income individuals.

In our paper "Tax Progressivity, Economic Booms, and Trickle-Up Economics,"Jackson, Laura E.; Otrok, Christopher; and Owyang, Michael T. “Tax Progressivity, Economic Booms, and Trickle-Up Economics.” Federal Reserve Bank of St. Louis Working Paper 2019-034A, November 2019. we computed a measure of tax progressivity jointly with a measure of the overall level of taxes. Thus, our measure minimized the amount that tax progressivity increases or decreases tax revenue, making it close to a pure reallocation of the burden of taxes.