Inequality, Mobility and Redistributive Taxation in a Finance-Constrained Economy

Ryo Arawatari, Tetsuo Ono

Abstract


This paper presents a simple model that displays a joint determination of income inequality and intergenerational mobility affected by redistributive taxation. The model shows that a larger redistribution improves equality and utility and enhances mobility when the poor are financially constrained, however it creates a trade-off between the rich and the poor in terms of utility when the poor are financially unconstrained. The model also shows that the size of the redistribution as well as wage inequality play key roles in explaining the cross-country differences in inequality and mobility among OECD countries.


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DOI: https://doi.org/10.11114/aef.v2i4.1174

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Applied Economics and Finance    ISSN 2332-7294 (Print)   ISSN 2332-7308 (Online)

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