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Comparing inequality and mobility in linear models
- Peng, Baochun
- Economics letters 2018 v.168 pp. 155-157
- capital, income, income tax, linear models, risk
- This note shows that income risk and capital risk affect mobility and inequality asymmetrically in the linear model analysed by Zhu (2013). Inequality responds to changes in both income risk and capital risk, while mobility responds to changes in capital risk and may not respond to changes in income risk. Consequently, income tax reduces wealth inequality without affecting wealth mobility, while tax on capital returns reduces wealth inequality and increases wealth mobility.