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Classical Horizontal Inequity and Reranking: an Integrated Approach

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  • Jean-Yves Duclos

    ()

  • Vincent Jalbert
  • Abdelkrim Araar

Abstract

The last 20 years have seen a significant evolution in the literature on horizontal inequity (HI) and have generated two major and "rival" methodological strands, namely, classical HI and reranking. We propose in this paper a class of ethically flexible tools that integrate these two strands. This is achieved using a measure of inequality that merges the well-known Gini coefficient and Atkinson indices, and that allows a decomposition of the total redistributive effect of taxes and transfers in a vertical equity effect and a loss of redistribution due to either classical HI or reranking. An inequality-change approach and a money-metric cost-of-inequality approach are developed. The latter approach makes aggregate classical HI decomposable across groups. As in recent work, equals are identified through a nonparametric estimation of the joint density of gross and net incomes. An illustration using Canadian data from 1981 to 1994 shows a substantial, and increasing, robust erosion of redistribution attributable both to classical HI and to reranking, but does not reveal which of reranking or classical HI is more important since this requires a judgement that is fundamentally normative in nature.

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Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 478.01.

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Length: 37
Date of creation: 24 Jan 2001
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Handle: RePEc:aub:autbar:478.01

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Keywords: Horizontal inequity; reranking; tax equity; inequality; Canadian tax system.;

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Cited by:
  1. 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.
  2. Ivica Urban, 2009. "Kakwani decomposition of redistributive effect: Origins, critics and upgrades," Working Papers 148, ECINEQ, Society for the Study of Economic Inequality.
  3. Ivica, Urban, 2011. "Duclos-Jalbert-Araar decomposition of redistributive effect: implementation issues," MPRA Paper 28068, University Library of Munich, Germany.
  4. Mitja ÄŒok & Ivica Urban & Miroslav VerbiÄ, 2013. "Income Redistribution through Taxes and Social Benefits: The Case of Slovenia and Croatia," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(5), pages 667-686, September.
  5. Jean-Yves Duclos, 2006. "Equity and Equality," Cahiers de recherche 0629, CIRPEE.
  6. repec:ebl:ecbull:v:3:y:2003:i:19:p:1-16 is not listed on IDEAS

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