Technical Change, Wage Inequality, and Taxes

Laurence Ales · Musab Kurnaz · Christopher M. Sleet

86 citations0/0 files storedAmerican Economic Review

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Labor market dynamics and wage inequality Economic and Fiscal Studies Fiscal Policy and Economic Growth

Abstract

This paper considers the normative implications of technical change for tax policy design. A task-to-talent assignment model of the labor market is embedded into an optimal tax problem. Technical change modifies equilibrium wage growth across talents and the substitutability of talents across tasks. The overall optimal policy response is to reduce marginal income taxes on low to middle incomes, while raising those on middle to high incomes. The reform favors those in the middle of the income distribution, reducing their average taxes while lowering transfers to those at the bottom. (JEL D31, H21, H23, H24, J31, O33)

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References

2003The Skill Content of Recent Technological Change: An Empirical Exploration 1971An Exploration in the Theory of Optimum Income Taxation 2013The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market 2002Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence 2001The Skill Content of Recent Technological Change: An Empirical Exploration 2007Lousy and Lovely Jobs: The Rising Polarization of Work in Britain 2008Trading Tasks: A Simple Theory of Offshoring 2010Skills, Tasks and Technologies: Implications for Employment and Earnings

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