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Obviously, if there is higher tax rate on higher incomes this will reduce inequality even if the net amount of taxes collected stays the same.
by hristov 8y ago
Obviously, if there is higher tax rate on higher incomes this will reduce inequality even if the net amount of taxes collected stays the same.
- Lazare 8y agoThat's a lot less obvious than you'd think, in large part because people have so much scope to react to changes in tax rates by restructuring their income, sheltering it, etc. The impact of taxation on inequality is empirically much lower than the impact of spending. You can see this, eg, by looking at the Nordic countries, which have relatively flat taxes skewed towards regressive taxes like a VAT, but low inequality, while countries like the US have very progressive income tax structures but high inequality. The difference, at a very high level, is that Denmark spends money on the poor, and the US spends it on the upper middle class. :) You can see this clearly looking at the first graph here: https://lanekenworthy.net/2008/02/10/taxes-and-inequality-lessons-from-abroad/ https://lanekenworthy.net/2008/02/10/taxes-and-inequality-le... Inequality is reduced via spending, not taxes; taxes are primarily useful as a revenue source.