Can reparation deliver equality? Projections for the shared socioeconomic pathways in the USA

Abstract

Reparations in terms of direct payments are often used to redress injustices and compensate for historical inequalities. In some parts of the United States, restoring the deferred wealth of Black population through reparations has gained traction in recent years. However, there is no consensus on which reparative policies should be implemented and how to assess their potential impact. Here we show that reparative taxation of White population can be an effective measure in closing the racial wealth gap. We found that imposing a hypothetical one-time reparative estate tax of 5% can potentially close the racial wealth gap among all skill groups (high-skilled, low-skilled, and combined). However, the impact of such reparation shock on closing the wealth gap between high-skilled and low-skilled labor can be observed only among Black population. Nevertheless, the impact of imposing a similar one-time reparative inheritance tax of 5% is less profound in closing the racial wealth gap. Overall, the low-skilled Black sub-population emerges as the group benefiting the most from these hypothetical taxation schemes. These results show how reparation policies in the form of taxation of intergenerational wealth transfers can help close the racial wealth gap while having a short-lived impact on the skill-based wealth gap. The structural economic model of overlapping generations proposed in this paper can be considered a stepping stone to the incorporation of intergenerational and interracial inequalities into the shared socioeconomic pathways (SSPs). JEL Classification: J15 , D63 , D31