Virgiliu Midrigan, New York University. "Efficient Redistribution".

Department seminar. Virgiliu Midrigan is William R. Berkley Term Professor of Economics And Business at NYU. He will present the paper "Efficient Redistribution".

Photo of Virgiliu Midrigan

Virgiliu Midrigan


What are the most efficient means of redistribution in an unequal economy? We answer this question by characterizing the optimal shape of non-linear income and wealth taxes in a dynamic general equilibrium model with uninsurable idiosyncratic risk. Our analysis reproduces the distribution of income and wealth in the United States and explicitly takes into account the long-lived transition dynamics after policy reforms. We find that a uniform flat tax on capital and labor income combined with a lump-sum transfer is nearly optimal. Though allowing for increasing marginal income and wealth taxes raises welfare, the incremental gains are small due to strong behavioral and general equilibrium effects. This result is robust to changing household preferences, the distribution of ability, the planner’s preference for redistribution, as well as to explicitly modeling private business ownership and the ensuing heterogeneity in rates of return.

Link to full paper.


Published May 25, 2021 10:40 AM - Last modified June 8, 2021 11:34 AM