Inequality as an externality: Consequences for tax design ☆

• 成果类型: Article
• 署名作者: Stostad, Morten Nyborg; Cowell, Frank
• 署名单位: Norwegian School of Economics (NHH); University of California System; University of California Berkeley; University of London; London School Economics & Political Science
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2024.105139
• 发表日期: 2024
• 关键词: inequality; externalities; Optimal income taxation; welfare

摘要

Economic inequality may affect a wide range of societal outcomes, for example crime rates, economic growth, and political polarization. In this paper we discuss how to model such effects in welfarist frameworks. Our main suggestion is to treat economic inequality itself as an externality, which has wide-ranging implications for classical economic theory. We show this through the Mirrlees (1971) optimal non-linear income taxation model, where we focus on a post -tax income inequality externality. Optimal top marginal tax rates are particularly affected by the externality, implying a novel equality dimension to optimal top tax rate design. We propose that inequality's externality properties may have larger optimal top tax rate implications than standard revenue concerns; our model thus provides a theoretical basis for real -world governmental tax choices that seem irrational under standard optimal taxation models. We also show that the total inequality aversion implied by the current U.S. tax system is insufficient to accommodate both social welfare weights that are decreasing in income and a significant concern for inequality's externality effects.