Essays on income distribution, economic growth, and taxation

This dissertation is the result of my experience as a PhD student taking part in the Doctoral Programme at the University of Cagliari. Recent public interest in tax policies which are contemporaneously able to promoting economic growth and reducing income inequality has motivated this research. In this spirit, Chapter 1 gives an overview of the state of art in the relationship between income distribution and economic development, while, the remaining chapters provide an empirical investigation of tax policies that are both growth-enhancing and inequality-reducing. Chapter 2 investigates the impact of marginal taxation on economic growth, paying particular attention on the role of quality of institutions, in a panel data set of 26 OECD countries for the period 1981-2015. While dealing with omitted variables, measurement errors, and endogeneity issues, our analysis is carried out using fixed effects and generalized method of moment (GMM) techniques. Focusing on the direct effect of marginal tax rates on growth our results show no-significant evidence. Interestingly, fixed effects estimations reveal that the effect of marginal tax rates on growth changes due to the level of institutional quality: higher marginal tax rates appear harmful for growth in countries with institutional quality lower than sample average, as predicted by standard supply-side theory, but this distortionary effect of marginal taxation becomes negligible in right institutions. However, this evidence is not confirmed when GMM estimator is performed. Chapter 3 examines the effect of joint taxation on female labour behaviour using micro data from the European Union Statistics on Income and Living Conditions (EU-SILC). We look at the impact of joint taxation on the probability of working comparing the female labour responses of a group treated with joint taxation (married women living in Germany) to the female labour responses of a group not treated with (unmarried women living in Germany and married/unmarried women living in Austria). Dealing with potential self-selection bias, this analysis is carried out using instrumental variables methods (two-stage least square and bivariate probit estimators) with cross-sections data in 2012. Our results are consistent with economic theory suggesting a negative effect of joint tax treatment of married couples on female labour decisions.