Marginal tax rates and income inequality in a life-cycle model

In this paper we study the quantitative impact of marginal tax rates on the distribution of income. Our methodology builds on computable general-equil ibrium framework. We find that distortions from marginal tax rate changes o f the sort implied by the Tax Reform Act of 1986 have sizable effects on in come inequality in a reasonably quantified life-cycle setting: In our model rate changes alone capture half the increase in the pretax Gini that actua lly occurred between 1984 and 1989. (JEL C68, D31, H30, H20).