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Stephanie Ettmeier, Ph.D.

University of Bonn, Germany

 Abstract: This paper quantifies the distributional effects of tax changes in the United States. A functional vector autoregression framework is used to estimate the joint dynamics of tax shocks, the cross-sectional distribution of disposable income, and macroeconomic aggregates. I distinguish between changes in personal and corporate income taxes and investigate the distributional effects on families and business owners. While tax cuts boost aggregate disposable income, the benefits are spread unevenly. The increase in overall inequality is driven primarily by rising disparities among entrepreneurs, particularly in the upper tail of their distribution. Though families experience reduced within-group inequality, neither families nor entrepreneurs benefit more in aggregate terms than their non-targeted counterparts, challenging prevalent political narratives about tax policy beneficiaries.

Full Text: No taxation without reallocation: the distributional effects of tax changes