Stephanie Ettmeier (University of Bonn)

No taxation without reallocation: the distributional effects of tax changes

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. I document that tax changes affect incomes along the distribution unevenly and that the family status and the source of income matters. Tax reductions benefit high incomes and disadvantage lower incomes. Entrepreneurs and families benefit more from tax cuts than individuals without business income and non-families.