Optimal Tax Progressivity and Growth
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2021-03-24
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Costa, Carlos Eugênio Ellery Lustosa da
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I propose an innovation-lead growth model with occupational choice to analise optimal tax progressivity. Beyond facing the classical trade-off of efficiency and redistribution, taxes can, in principle, distort participation in risk-taking entrepreneurship and impact growth prospects. I find that risk-taking activity is not considerably affected by taxation, but that growth is and could be a very important factor for assessing the costs of income redistribution. In the baseline parametrization, optimal progressivity is lower than that of the U.S., mainly due to the weight of growth on social welfare. Ignoring this factor leads to substantially higher progressivity recommendations.