Template-Type: ReDIF-Paper 1.0
Author-Name: Constantine Angyridis
Author-X-Name-First: Constantine
Author-X-Name-Last: Angyridis
Author-Email: cangyridis@arts.ryerson.ca
Author-Workplace-Name: Department of Economics, Ryerson University
Author-Name: Brennan S. Thompson
Author-X-Name-First: Brennan
Author-X-Name-Last: Thompson
Author-Email: brennan@ryerson.ca
Author-Workplace-Name: Department of Economics, Ryerson University
Title: Negative Income Taxes, Inequality, and Poverty
Abstract: We use a neoclassical growth model with heterogeneous agents to analyze the redistributive effects of a negative income tax system, which combines a flat rate tax with a fully refundable credit ("demogrant"). We show that changing the demogrant-to-output ratio causes significant changes in the distribution of income. Specifically, we find that increasing the demogrant-to-output ratio sharply reduces the level of inequality as well as both relative and absolute poverty (all measured in terms of post-tax total income). However, these reductions in inequality and poverty come at the expense of a significant reduction in output.
Classification-JEL:
Keywords: negative income tax, flat tax, inequality, Lorenz dominance, relative poverty, heterogeneous agents
Length: 26 pages
Creation-Date: 2012-08
Revision-Date: 2015-08
Number: 034
File-URL: http://economics.ryerson.ca/workingpapers/wp034.pdf
File-Format: Application/pdf
Handle: RePEc:rye:wpaper:wp034