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Close Equals and Calculation of the Vertical, Horizontal and Reranking Effects of Taxation

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  • van de Ven, Justin
  • Creedy, John
  • Lambert, Peter J

Abstract

This paper examines the Gini-based method of decomposing the redistributive effect of taxation into vertical, horizontal, and reranking components. The consequences of different bandwidth choices, used to identify close-equals groups to estimate the horizontal effect, are discussed. Two opposing forces are identified which militate against choosing a very small or large bandwidth. It is suggested that the best procedure is to use the bandwidth that maximises the estimated vertical component, compute the reranking component exactly as a sample statistic and obtain the horizontal effect by subtraction. The technique is used to analyse the progressivity of tax and transfer payments in Australia. Copyright 2001 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 63 (2001)
Issue (Month): 3 (July)
Pages: 381-94

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Handle: RePEc:bla:obuest:v:63:y:2001:i:3:p:381-94

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Cited by:
  1. Abu-Zaineh, Mohammad & Mataria, Awad & Luchini, Stéphane & Moatti, Jean-Paul, 2009. "Equity in health care finance in Palestine: The triple effects revealed," Journal of Health Economics, Elsevier, Elsevier, vol. 28(6), pages 1071-1080, December.
  2. Tabi Atemnkeng Johannes & Tafah Akwi & Peter Etoh Anzah, 2006. "The Distributive Impact of Fiscal Policy in Cameroon: Tax and Benefit Incidence," Working Papers PMMA, PEP-PMMA 2006-16, PEP-PMMA.
  3. Wagstaff, Adam, 2005. "Decomposing changes in income inequality into vertical and horizontal redistribution and reranking, withapplications to China and Vietnam," Policy Research Working Paper Series 3559, The World Bank.
  4. Essama-Nssah, B., 2008. "Assessing the redistributive effect of fiscal policy," Policy Research Working Paper Series 4592, The World Bank.
  5. William Griffiths, 2008. "On Dagum’s Decomposition of the Gini Coefficient," Department of Economics - Working Papers Series, The University of Melbourne 1054, The University of Melbourne.
  6. Kinam Kim & Peter J. Lambert, 2009. "Redistributive Effect of U.S. Taxes and Public Transfers, 1994-2004," Public Finance Review, , , vol. 37(1), pages 3-26, January.
  7. Bilger, Marcel, 2008. "Progressivity, horizontal inequality and reranking caused by health system financing: A decomposition analysis for Switzerland," Journal of Health Economics, Elsevier, Elsevier, vol. 27(6), pages 1582-1593, December.
  8. Paul Allanson, 2005. "Classical Horizontal Inequities in the Provision of Agricultural Income Support," Dundee Discussion Papers in Economics, Economic Studies, University of Dundee 177, Economic Studies, University of Dundee.
  9. Ivica Urban & Peter J. Lambert, 2008. "Redistribution, Horizontal Inequity, and Reranking : How To Measure Them ProperlyAbstract: The decomposition of the Gini-based index of redistributive effect of an income tax into vertical, horizontal," Public Finance Review, , , vol. 36(5), pages 563-587, September.
  10. Ivica Urban, 2009. "Kakwani decomposition of redistributive effect: Origins, critics and upgrades," Working Papers 148, ECINEQ, Society for the Study of Economic Inequality.

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