Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
Recent empirical evidence finds that progressive taxation is an effective economic stabilizer, but theoretical results disagree. This paper shows that a lifecycle model with total factor productivity shocks can match the empirical evidence. If the US economy switched from progressive to proportional taxation, output volatility would increase by 5 percent. Progressive taxes act as stabilizers by reducing income volatility among the young and soon‐to‐be retirees. Thus, incorporating a rich lifecycle structure in the model is important to match the data. The model is then used to study the welfare implications of reducing tax progressivity.