Taxation and the redistribution of income (original) (raw)

The paper discusses the limitations of the tax system's ability to redistribute income effectively. It presents a model that highlights how attempting to increase progressivity in taxation can lead to market adjustments that counteract these redistributive efforts. Specifically, when the tax system becomes more progressive, market forces cause an increase in pretax wage inequality as wages are adjusted based on tax burdens, ultimately undermining the objective of achieving post-tax income equality.