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Progression-neutral income tax reforms and horizontal inequity

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  • Maria Cubel
  • Peter Lambert

Abstract

A switch from any given income tax schedule to a tax structure in which two groups of taxpayers are treated differently, each still facing the same degree of progression, can induce an increase in welfare despite causing horizontal inequity (HI). The thrust of much recent research, however, is that removing the HI from an income tax system, by replacing it with a schedule, is itself welfare improving. In this note we reconcile these results, showing that acceptance of HI can be second-best when government must operate with a limited bundle of income tax parameters. Copyright Springer-Verlag 2002

Suggested Citation

  • Maria Cubel & Peter Lambert, 2002. "Progression-neutral income tax reforms and horizontal inequity," Journal of Economics, Springer, vol. 77(1), pages 1-8, December.
    • Handle: RePEc:kap:jeczfn:v:77:y:2002:i:1:p:1-8
    DOI: 10.1007/BF03052498
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    References listed on IDEAS

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    1. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-625, April.
    2. Frank A. Cowell, 1980. "On the Structure of Additive Inequality Measures," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(3), pages 521-531.
    3. Maria Cubel & Peter Lambert, "undated". "A Regional Approach to Income Tax Policy," Discussion Papers 97/8, Department of Economics, University of York.
    4. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-920, July.
    5. Peter Lambert, & Xavier Ramos, 1995. "Vertical redistribution and horizontal inequity," IFS Working Papers W95/01, Institute for Fiscal Studies.
    6. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
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    Cited by:

    1. Peter J. Lambert, 2004. "Income Taxation and Equity," Working Papers 2004/4, Institut d'Economia de Barcelona (IEB).
    2. Julio López-Laborda & Jorge Onrubia, 2005. "Personal Income Tax Decentralization, Inequality, and Social Welfare," Public Finance Review, , vol. 33(2), pages 213-235, March.
    3. Peter J. Lambert, 2004. "Income Taxation and Equity," Working Papers 2004/4, Institut d'Economia de Barcelona (IEB).
    4. Peter J. Lambert, 2007. "Positional equity and equal sacrifice: design principles for an EU-wide income tax?," Working Papers 0706, University of Otago, Department of Economics, revised Apr 2007.

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    More about this item

    Keywords

    Income Tax; Horizontal Equity; Inequality; Welfare; D63; H24; I31;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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