A Note on Income Distribution and Growth

Many analysts expect the aging population to lead to a reduction in the growth of living standards. Income inequality – a problem that has been accentuated by the payroll tax hikes that were necessary to fund the public pension as the population ages – is becoming an increasing challenge at the same time. As a result, policy-makers need to pursue initiatives that can simultaneously address both our efficiency and our equity objectives. With the challenge of the aging population, it is all the more important that we not rely on fiscal policies that involve a trade-off between growth and equality. This paper identifies a strategy for tax policy that meets these objectives.