Diversity and Economic Growth in a Model with Progressive Taxation
Is a more heterogeneous population conducive or detrimental to capital accumulation and economic growth? This paper addresses this question using a dynamic general equilibrium model with ex ante heterogeneous consumers and progressive taxation. We show that the answer depends crucially on the shape of the marginal tax function. If this function is concave, then a more heterogeneous population will have a lower average marginal tax rate and a higher level of capital accumulation. The opposite is true when the marginal tax function is convex. These results are robust in a variety of models with either exogenous or endogenous economic growth.
Dr. Wei Wang is associate professor from the Research Institute of Economics and Management, Southwestern University of Finance and Economics. She obtained the PhD in Economics at the University of Connecticut. Her research interests are economic growth, economic inequality, and consumer heterogeneity.