The Income Distribution Effects of Personal Taxes:Numerical Simulation Analysis Based on a Heterogeneous OLG Model
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| Title | The Income Distribution Effects of Personal Taxes:Numerical Simulation Analysis Based on a Heterogeneous OLG Model
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| Author | Liu Yuansheng, Yang Chengyu and Yuan Qiang |
| Organization | Beijing Normal University |
| Email | lysmails@gmail.com；cyang@bnu.edu.cn；yuanqiang@bnu.edu.cn |
| Key Words | Heterogeneous Agents; Income Tax; Redistribution Policy |
| Abstract | In this paper, we build a two-period overlapping generations model with human capital investment and taxes to discuss the effects of exemption and tax rates on income distribution, wealth distribution and economic growth. The model economy is characterized by heterogeneous individuals who differ in physical strength and learning ability. Each individual chooses saving, education time and leisure time to optimize his or her lifetime utility. The main parameters are calibrated using China’s empirical data. Numerical simulation shows a U shaped relationship between the exemption level of income taxes and the income Gini coefficient. Given the tax rate, there exists an optimal exemption that minimizes the Gini coefficient. When exceeding the optimal value, the exemption increases both the Gini coefficient and growth rate. In order to reduce the inequality of income distribution, the exemption should be adjusted as income grows. In general, the income tax rate exhibits an inverse relationship with the economic growth rate, which indicates the tradeoff between equity and efficiency. |
| Serial Number | WP351 |
| Time | 2012-08-31 |
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