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On the Distribution of the Welfare Losses of Large Recessions
How big are the welfare losses from severe economic downturns, such as the U.S. Great Recession? How are those losses distributed across the population? In this paper we answer these questions using a canonical business cycle model featuring household income and wealth heterogeneity that matches micro data from the Panel Study of Income Dynamics (PSID). We document how these losses are distributed across households and how they are affected by social insurance policies. We find that the welfare cost of losing one?s job in a severe recession ranges from 2% of lifetime consumption for the ...
Use it or Lose it: Efficiency Gains from Wealth Taxation
How does wealth taxation differ from capital income taxation? When the return on investment is equal across individuals, a well-known result is that the two tax systems are equivalent. Motivated by recent empirical evidence documenting persistent heterogeneity in rates of return across individuals, we revisit this question. With such heterogeneity, the two tax systems have opposite implications for both efficiency and inequality. Under capital income taxation, entrepreneurs who are more productive, and therefore generate more income, pay higher taxes. Under wealth taxation, entrepreneurs who ...
Wealth inequality among the Forbes 400 and U.S. households overall
While widening income inequality in the United States has garnered much public and academic attention in recent years, wealth inequality reveals an even starker picture. For instance, in 2010, the top 1 percent of income earners received 19.8 percent of total household income. In the same year, the wealthiest 1 percent held 35.4 percent of total household wealth (Kaplan 2013). Moreover, wealth inequality has increased in recent decades, with most gains concentrated among the richest 20 percent of households (Wolff 2013).