Based mostly on a easy and intuitive level, the title of the paper is: “How Ought to Tax Progressivity Reply to Rising Earnings Inequality?”, and the reply is one thing you rarely hear acknowledged:
When dealing with shifts within the earnings distribution like these noticed within the US, a utilitarian planner chooses larger progressivity in response to bigger residual inequality however decrease progressivity in response to widening talent value dispersion reflecting technical change. General, optimum progressivity is roughly unchanged between 1980 and 2016. We doc that the progressivity of the particular US tax and switch system has equally modified little since 1980, consistent with the mannequin prescription.
That’s from a new NBER working paper by Jonathan Heathcote, Kjetil Storesletten, and Giovanni L. Violante.