Table 4.
Open in new tab

Optimal tax progressivity in model with exogenous health and income risk.

(1) Benchmark(2) Optimized progressivity τ*
Output (GDP)10093.36
Capital (K)10090.77
Non-medical consumption (C)10093.25
Labor participation rate67.1469.21
Weekly hours worked10093.92
Workers IHI (%)|$7.8\%$||$10.17\%$|
Workers GHI (%)|$63.8\%$||$65.7\%$|
Workers Medicaid (%)|$8.8\%$||$5.8\%$|
Average IHI premium10090.11
Average GHI premium10090.30
Interest rate |$(r\text{ in $\%$})$|5.96.16
Wage rate (w)100.0098.48
Gini (net income)0.3520.320
Gini (OOP health expenditure)0.5480.543
Suits index (income tax)0.1220.218
Tax progressivity (τ)0.0530.113
Scaling parameter (λ)1.0171.277
Tax break threshold|${\$}$|1,402|${\$}$|8,810
Welfare (CEV):0+0.102
 • Income group 1 (sick)0+1.815
 • Income group 2 (sick)0+0.724
 • Income group 2 (healthy)0+1.159
 • Income group 3 (healthy)0−2.584
(1) Benchmark(2) Optimized progressivity τ*
Output (GDP)10093.36
Capital (K)10090.77
Non-medical consumption (C)10093.25
Labor participation rate67.1469.21
Weekly hours worked10093.92
Workers IHI (%)|$7.8\%$||$10.17\%$|
Workers GHI (%)|$63.8\%$||$65.7\%$|
Workers Medicaid (%)|$8.8\%$||$5.8\%$|
Average IHI premium10090.11
Average GHI premium10090.30
Interest rate |$(r\text{ in $\%$})$|5.96.16
Wage rate (w)100.0098.48
Gini (net income)0.3520.320
Gini (OOP health expenditure)0.5480.543
Suits index (income tax)0.1220.218
Tax progressivity (τ)0.0530.113
Scaling parameter (λ)1.0171.277
Tax break threshold|${\$}$|1,402|${\$}$|8,810
Welfare (CEV):0+0.102
 • Income group 1 (sick)0+1.815
 • Income group 2 (sick)0+0.724
 • Income group 2 (healthy)0+1.159
 • Income group 3 (healthy)0−2.584

Notes: Column (1) shows steady-state results of the benchmark economy based on the current US income tax system. Column (2) shows steady-state results for an identical economy with a welfare maximizing (optimal) progressive income tax system. Numbers in rows marked with the % symbol are either fractions in percent or tax rates in percent. The other rows are normalized with values of the benchmark case. Each column presents steady-state results. Compensating Equivalent Variation (CEV) values are reported as percentage changes in terms of lifetime consumption of a newborn individual with respect to consumption levels in the benchmark model.

Table 4.
Open in new tab

Optimal tax progressivity in model with exogenous health and income risk.

(1) Benchmark(2) Optimized progressivity τ*
Output (GDP)10093.36
Capital (K)10090.77
Non-medical consumption (C)10093.25
Labor participation rate67.1469.21
Weekly hours worked10093.92
Workers IHI (%)|$7.8\%$||$10.17\%$|
Workers GHI (%)|$63.8\%$||$65.7\%$|
Workers Medicaid (%)|$8.8\%$||$5.8\%$|
Average IHI premium10090.11
Average GHI premium10090.30
Interest rate |$(r\text{ in $\%$})$|5.96.16
Wage rate (w)100.0098.48
Gini (net income)0.3520.320
Gini (OOP health expenditure)0.5480.543
Suits index (income tax)0.1220.218
Tax progressivity (τ)0.0530.113
Scaling parameter (λ)1.0171.277
Tax break threshold|${\$}$|1,402|${\$}$|8,810
Welfare (CEV):0+0.102
 • Income group 1 (sick)0+1.815
 • Income group 2 (sick)0+0.724
 • Income group 2 (healthy)0+1.159
 • Income group 3 (healthy)0−2.584
(1) Benchmark(2) Optimized progressivity τ*
Output (GDP)10093.36
Capital (K)10090.77
Non-medical consumption (C)10093.25
Labor participation rate67.1469.21
Weekly hours worked10093.92
Workers IHI (%)|$7.8\%$||$10.17\%$|
Workers GHI (%)|$63.8\%$||$65.7\%$|
Workers Medicaid (%)|$8.8\%$||$5.8\%$|
Average IHI premium10090.11
Average GHI premium10090.30
Interest rate |$(r\text{ in $\%$})$|5.96.16
Wage rate (w)100.0098.48
Gini (net income)0.3520.320
Gini (OOP health expenditure)0.5480.543
Suits index (income tax)0.1220.218
Tax progressivity (τ)0.0530.113
Scaling parameter (λ)1.0171.277
Tax break threshold|${\$}$|1,402|${\$}$|8,810
Welfare (CEV):0+0.102
 • Income group 1 (sick)0+1.815
 • Income group 2 (sick)0+0.724
 • Income group 2 (healthy)0+1.159
 • Income group 3 (healthy)0−2.584

Notes: Column (1) shows steady-state results of the benchmark economy based on the current US income tax system. Column (2) shows steady-state results for an identical economy with a welfare maximizing (optimal) progressive income tax system. Numbers in rows marked with the % symbol are either fractions in percent or tax rates in percent. The other rows are normalized with values of the benchmark case. Each column presents steady-state results. Compensating Equivalent Variation (CEV) values are reported as percentage changes in terms of lifetime consumption of a newborn individual with respect to consumption levels in the benchmark model.

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