Negative income taxes, inequality and poverty

摘要

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.