| This dissertation uses a dynamic general equilibrium framework to address two specific issues on the allocation of a tax burden in an economy. The first chapter of the thesis (joint with Andres Erosa) concerns an on-going debate of eliminating progressivity in the current US income tax system. The second chapter proposes a quantitative theory behind the high reliance on the inflation tax in many developing economies.;A progressive tax reduces inequality by shifting the tax burden from income-poor to income-rich households. The goal of this chapter is to quantitatively assess the aggregate and distributional effects of eliminating progressivity of the income tax schedule in the US economy. Our contribution to the literature is to perform this exercise in an environment with two types of accumulated capital: human and physical. We do so by building a quantitative theory of parental investments in human and physical capital that is consistent with a set of observations about economic inequality in the U.S. economy. Rather than assuming an exogenous transmission of human capital across generations, we consider parental investments of time and expenditure on education as inputs into the production of the human capital of an offspring. We find that elimination of the progressivity in the tax code increases the steady state levels of output, capital, and consumption by 12.6%, 21.8%, and 13.2%, and increases inequality, as measured by changes in the Gini coefficients, in earnings, income, and wealth by .016, .034, and .062 percentage points, respectively. We also find that these effects are significantly smaller if earnings inequality is transmitted solely through genetic endowments. We emphasize the importance of using the cross-sectional implications of theory in order to accurately assess the effects of tax policy on the aggregate labor supply.;The pervasiveness of inflation over the last half century has drawn extensive research on monetary policy. While the focus of the quantitative analysis of inflation, to date, has remained on developed countries, it is poor countries that are notorious for high rates of inflation. Why is inflation much higher in poor rather than in rich countries? The second chapter of the thesis uses a calibrated general equilibrium model to show that, in the presence of a large underground economy, high inflation can be an outcome of optimal policy for financing government budgets. (Abstract shortened by UMI.)... |
