Tax progressivity and output in the US

By João Tovar Jalles & Georgios Karras.

Highlights

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  We use a novel data set on US tax progressivity constructed by Borella et al. (2022).
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  We estimate its output effects in the US since 1970.
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  Tax progressivity reduces growth temporarily and the level of income per capita permanently.
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  Results are robust to controlling for changes in the tax rate.

Abstract

Compared to the economic effects of tax rates, those of tax progressivity have benefited much less from the recent Renaissance in fiscal research. In this letter, we use a novel data set on US tax progressivity constructed by Borella et al. (2022) to estimate its output effects since 1970. Our results show that tax progressivity reduces the economy's growth rate temporarily and the level of income per capita permanently. Both effects are sizable, statistically significant, and robust to various specifications and to controlling for changes in the tax rate.