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Marginal Tax Rates and Income Inequality in a Life-Cycle Model

David Altig and Charles T. Carlstrom
The American Economic Review
Vol. 89, No. 5 (Dec., 1999), pp. 1197-1215
Stable URL: http://www.jstor.org/stable/117054
Page Count: 19
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Marginal Tax Rates and Income Inequality in a Life-Cycle Model
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Abstract

In this paper we study the quantitative impact of marginal tax rates on the distribution of income. Our methodology builds on computable general-equilibrium framework. We find that distortions from marginal tax rate changes of the sort implied by the Tax Reform Act of 1986 have sizable effects on income inequality in a reasonably quantified life-cycle setting: In our model rate changes alone capture half the increase in the pretax Gini that actually occurred between 1984 and 1989.

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