On the equivalence between progressive taxation and inequality reduction

We establish the precise connections between progressive taxation and inequality reduction, in a setting where the level of tax revenue to be raised is endogenously fixed and tax schemes are balanced. We show that, in contrast with the traditional literature on taxation, the equivalence between inequality reduction and the combination of progressivity and income order preservation does not always hold in this setting. However, we show that, among rules satisfying consistency and, either revenue continuity, or revenue monotonicity, the equivalence remains intact.progressivity, inequality reduction, income order preservation, consistency, taxation

Tibor Barna: the redistributive impact of taxes and social policies in the UK 1937-2005

Regular annual studies made by the Office of National Statistics in the UK are intended to show how far taxing household incomes and giving benefits in cash and kind to households redistributes income from rich to poor. The first attempt to do this in the UK was made by Tibor Barna for the year 1937. Subsequently his approach has been replicated and elaborated. This study reworks and compares data from various studies to see how the scale and nature of the state’s redistributive role has changed over the past seventy years. Differences in methods and data make comparisons difficult but some broad conclusions can be drawn. Some methodological issues are also discussed on the question of how to approach household equivalisation when services in kind are treated as income

The Redistributive Aspects of ELIE: a simulationapproach

This paper analyses the problems linked to the implementation of the Equal Labour Income Equalisation (ELIE) scheme proposed by Kolm (2005). It successively studies the influence of uncertainty in the knowledge of individual incomes, the impact of equivalence scales and finally the consequences of capital accumulation. If uncertainty does not modify fundamentally the equity properties of ELIE, equivalence scales can have non trivial consequences depending on the relation between income and fertility. Finally, capital accumulation introduces strong inequalities in taxation. The paper relies on simulations of the income distribution, calibrated on French data and on the use of taxation indices.inequality, ELIE, income distribution

Measuring distributional effects of fiscal reforms

The purpose of this paper is to provide an overview of how to analyse the distributional effects of fiscal reforms. Thereby, distributional e¤ects shall be differentiated by four subconcepts, i.e. 1.) the traditional concept of inequality, 2.) the rather novel concept of polarisation, 3.) the concept of progression in taxation, and 4.) the concepts of income poverty and richness. The concept of inequality and the concept of income poverty are the by far most widely applied concepts in empirical analyses, probably since they appear to be the most transparent ones in their structure as well as the most controversial ones in political affairs. However, the concepts of richness, polarisation and progression in taxation shall additionally be subject of this analysis, since they appear to be useful devices on the course of analysing cause and effect of the other two concepts. --Inequality,polarisation,progression,poverty,richness

Excise Taxation in New Zealand

In New Zealand, excise taxes are levied on three commodity groups: alcohol, tobacco and petrol. The 2001 Tax Review, published by the New Zealand Treasury, argued that excises are inequitable and inefficient, and advised that these taxes should be removed and the revenue replaced by raising the standard rate of GST. This paper provides an empirical examination of these issues. First, the efficiency of New Zealand’s current system of indirect taxes is examined. The welfare and redistributive effects resulting from the revenue-neutral removal of excise taxes are then examined. Welfare and redistributive measures are computed for a range of demographic groups and total weekly expenditure levels. While the largest efficiency gains and reductions in inequality are observed for households with at least one smoker, the overall distributional implications of the proposed reforms are found to be small.Indirect taxation; equivalent variations; excess burdens; inequality;tax reform

Redistributive Effect And Progressivity Of Taxes An International Comparison Across The EU Using EUROMOD

This paper gives an international comparison of the redistributive effect of personal income taxes in the 15 countries of the EU, using the European tax-benefit model EUROMOD. We focus on the effect of personal income taxes, social insurance contributions and other direct taxes. We present the contribution of progressivity and average tax rate to the reduction of income inequality, as well as the weight of the various types of tax concessions (i.e. exemptions, deductions, allowances and credits). There appears to be a wide variety among countries in the level of inequality reduction as well as in the instruments used to achieve this reduction. Personal income taxes are in all countries the most important source for inequality reduction, which is to a large extent, though not solely, due to the progressive rate schedule. Countries with a high degree of pre-tax inequality do not systematically redistribute more through their taxes; the results indicate rather the opposite.European Union, microsimulation, income redistribution, income taxes, social insurance contributions

Equity and Efficiency Measures of Tax-Transfer Systems: Some Evidence for New Zealand

The redistributive and efficiency aspects of personal taxes are of particular interest to both economists and governments designing tax reforms. Traditionally however, the numerous analytical tools available to calculate distributional and efficiency effects of taxes and transfers are not widely used in tax policy advice. This partly reflects the computational complexities involved in calculating some of those measures and the need for simplicity, and transparency of underlying assumptions, when presenting policy advice. This paper makes two contributions to the analysis of the equity and efficiency effects of tax policy. Firstly, it applies the methodologies proposed by economists to measure equity and efficiency outcomes of taxes to provide some evidence for the New Zealand income tax and transfer system. This makes use of Treasury’s microsimulation model, TaxWell. Secondly, the paper examines a database of low-income New Zealand taxpayers. A decomposition by individual and household characteristics shows that different groups of low income taxpayers can be affected quite differently by various aspects of the tax/transfer system. In particular, tax-free zones do not appear well targeted to help those most in need.Personal Income Taxes; Equity; Redistribution; Transfers; Tax Efficiency

Using the EU-SILC to model the impact of the economic crisis on inequality

peer-reviewedIn this paper we attempted to chart the impact of the early part of Ireland’s economic crisis from 2008–2009 on the distribution of income. In order to decompose the impact of changes in different income components, we utilised a microsimulation methodology and the EU-SILC User Database. This simulation based methodology involved the disaggregation of the 6 main benefit variables in the EU-SILC into 17 variables for our tax-benefit model. Validating, our results were positive, giving us confidence in our methodology. We utilised the framework to model changes in the level of income inequality from the period just before the crisis in 2004 to the depth of the worst year of the crisis in 2009. In terms of the impact of the economic crisis, we found that income inequality fell in the early part of the crisis modelled in this paper. Much of this change was due to rising inequality of market incomes, (even when discounting unemployment). This was due to the differential effect of the downturn on different sectors where some sectors such as the construction and public sectors were significantly hit, while the international traded sectors have been relatively immune from the downturn and have seen continued growth. The impact of the tax-benefit system has been to mitigate this upward pressure, with a gradual rise in the redistributive effect of the tax-benefit system driven by an increase in demand on the benefits side and increased progressivity on the tax side. Jel codes H22, H55, C1