Duclos-Jalbert-Araar decomposition of redistributive effect: implementation issues

Abstract

The models decomposing the redistributive effect of fiscal systems into vertical and horizontal effects are extensively used by practitioners. The Duclos, Jalbert and Araar’s (2003) model, despite its advantages, has not yet been extensively employed in empirical research, possibly due to certain difficulties emerging in its implementation. This paper addresses some of these problems and offers advice on how to solve them. Unfolding the estimation and calculation procedures it helps practitioners to properly apply the model. The procedures are first illustrated on small hypothetical population and then employed on the real data scenario for Croatian fiscal system. Connections with Kakwani’s (1984) decomposition and the issue of vertical effect as a measure of potential redistributive effect are also thoroughly discussed