The economic consequences of major tax cuts for the rich

Hope, David and Limberg, Julian (2020) The economic consequences of major tax cuts for the rich. International Inequalities Institute Working Papers (55). London School of Economics and Political Science, London, UK.

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Abstract

This paper uses data from 18 OECD countries over the last five decades to estimate the causal effect of major tax cuts for the rich on income inequality, economic growth, and unemployment. First, we use a new encompassing measure of taxes on the rich to identify instances of major reduction in tax progressivity. Then, we look at the causal effect of these episodes on economic outcomes by applying a nonparametric generalization of the difference-in-differences indicator that implements Mahalanobis matching in panel data analysis. We find that major reforms reducing taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income. The effect remains stable in the medium term. In contrast, such reforms do not have any significant effect on economic growth and unemployment.

Item Type:	Monograph (Working Paper)
Official URL:	https://www.lse.ac.uk/International-Inequalities/P...
Additional Information:	© 2020 The Authors
Divisions:	International Inequalities Institute LSE
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HJ Public Finance H Social Sciences > HN Social history and conditions. Social problems. Social reform
Date Deposited:	16 Dec 2020 07:42
Last Modified:	15 Sep 2023 23:52
URI:	http://eprints.lse.ac.uk/id/eprint/107919

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