Abstract

We investigate the impact of a shock in tax progressivity on GDP growth and income inequality in the US between 1969 and 2016. Employing various robustness tests, including different imputation methods for the progressivity index, as well as utilizing Vector Autoregressive and Linear Projection models for estimating impulse response functions, we find that both GDP growth and inequality decline in response to more tax progressivity. Nevertheless, only the effect on inequality remains statistically significant across our battery of robustness exercises, while the negative effect on GDP growth is robustly significant only prior to the Great Recession in 2008.