A new GLO Discussion Paper studies through counterfactual analysis how income taxation affects the correlation of income across generations. Introducing a flat tax regime reduces the correlation in comparison to no taxes, which is enforced through child benefits and a progressive scheme.
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GLO Discussion Paper No. 409, 2019
Intergenerational Income Mobility and Income Taxation – Download PDF
by Kurnaz, Musab & Soytas, Mehmet A
GLO Fellow Mehmet A. Soytas
Author Abstract: We study the impact of income taxation on intergenerational income correlation. We estimate a life cycle dynastic model and conduct counterfactual analysis to observe the effects of various tax regimes. Compared to a no tax environment, a flat tax regime reduces the correlation only by one percentage points. If the flat tax regime provides child benefits, the correlation additionally declines by four percentage points. Finally, if the taxes are progressive, the reduction, which is due to the increase in the fertility rate (quantity) and the decrease in the educational outcome of children (quality), is highly significant (seven percentage points).
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