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Unequal inequalities: Do progressive taxes reduce income inequality?

Author

Listed:
  • Denvil Duncan

    (Indiana University)

  • Klara Sabirianova Peter

    (University of North Carolina - Chapel Hill
    CEPR, and IZA)

Abstract

This paper analyzes the effect of changes in the structural progressivity of national income tax systems on observed and actual income inequality. Using several unique measures of progressivity over the 1981–2005 period for a large panel of countries, we find that progressivity reduces inequality in observed income, but has a significantly smaller impact on actual inequality, approximated by consumption-based Ginis. An empirical comparative analysis shows that the differential effect on observed versus actual inequality is much larger in countries with weaker legal institutions. We also find that structural progressivity has a greater equalizing effect in environments that support pro-poor redistribution. Substantial differences in inequality response to changes in top versus bottom rates are also uncovered.

Suggested Citation

  • Denvil Duncan & Klara Sabirianova Peter, 2016. "Unequal inequalities: Do progressive taxes reduce income inequality?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(4), pages 762-783, August.
    • Handle: RePEc:kap:itaxpf:v:23:y:2016:i:4:d:10.1007_s10797-016-9412-5
    DOI: 10.1007/s10797-016-9412-5
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    More about this item

    Keywords

    Income inequality; Gini; Personal income tax; Structural progressivity; Tax evasion;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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