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Classical Horizontal Inequity and Reranking: an Integrated Approach

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Author Info
Jean-Yves Duclos ()
Vincent Jalbert
Abdelkrim Araar

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

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Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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References listed on IDEAS
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  1. DUCLOS, Jean-Yves, 1994. "Progressivity, Redistribution and Equity, with Application to the British Tax and Benefit System," Cahiers de recherche 9403, Université Laval - Département d'économique. [Downloadable!]
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  5. Duclos, Jean-Yves, 1995. "Assessing the Performance of an Income Tax," Bulletin of Economic Research, Blackwell Publishing, vol. 47(2), pages 115-26, April.
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  6. Duclos, Jean-Yves, 1997. "The asymptotic distribution of linear indices of inequality, progressivity and redistribution," Economics Letters, Elsevier, vol. 54(1), pages 51-57, January. [Downloadable!] (restricted)
  7. Claudio Zoli, 1999. "Intersecting generalized Lorenz curves and the Gini index," Social Choice and Welfare, Springer, vol. 16(2), pages 183-196. [Downloadable!] (restricted)
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  9. Yitzhaki, Shlomo, 1983. "On an Extension of the Gini Inequality Index," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 617-28, October. [Downloadable!] (restricted)
  10. Duclos, Jean-Yves, 1995. "On Equity Aspects of Imperfect Income Distribution," Review of Income and Wealth, Blackwell Publishing, vol. 41(2), pages 177-90, June.
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  11. Chew, S. H. & Epstein, L. G., 1989. "A unifying approach to axiomatic non-expected utility theories," Journal of Economic Theory, Elsevier, vol. 49(2), pages 207-240, December. [Downloadable!] (restricted)
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  14. Alan J. Auerbach & Kevin A. Hassett, 1999. "A New Measure of Horizontal Equity," NBER Working Papers 7035, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Mehran, Farhad, 1976. "Linear Measures of Income Inequality," Econometrica, Econometric Society, vol. 44(4), pages 805-09, July. [Downloadable!] (restricted)
  16. Louis Kaplow, 1996. "A Fundamental Objection to Tax Equity Norms: A Call for Utilitarianism," NBER Working Papers 4961, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Blackorby, Charles & Donaldson, David, 1978. "Measures of relative equality and their meaning in terms of social welfare," Journal of Economic Theory, Elsevier, vol. 18(1), pages 59-80, June. [Downloadable!] (restricted)
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  24. Balcer, Yves & Sadka, Efraim, 1986. "Equivalence scales, horizontal equity and optimal taxation under utilitarianism," Journal of Public Economics, Elsevier, vol. 29(1), pages 79-97, February. [Downloadable!] (restricted)
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  26. Donaldson, David & Weymark, John A., 1983. "Ethically flexible gini indices for income distributions in the continuum," Journal of Economic Theory, Elsevier, vol. 29(2), pages 353-358, April. [Downloadable!] (restricted)
  27. Lambert, Peter J. & Yitzhaki, Shlomo, 1995. "Equity, equality and welfare," European Economic Review, Elsevier, vol. 39(3-4), pages 674-682, April. [Downloadable!] (restricted)
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  32. Elchanan Ben Porath & Itzhak Gilboa, 1991. "Linear Measures, the Gini Index and the Income-Equality Tradeoff," Discussion Papers 944, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  33. Donaldson, David & Weymark, John A., 1980. "A single-parameter generalization of the Gini indices of inequality," Journal of Economic Theory, Elsevier, vol. 22(1), pages 67-86, February. [Downloadable!] (restricted)
  34. Charles Blackorby & David Donaldson, 1984. "Ethical Social Index Numbers and the Measurement of Effective Tax-Benefit Progressivity," Canadian Journal of Economics, Canadian Economics Association, vol. 17(4), pages 683-94, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Wagstaff, Adam, 2005. "Decomposing changes in income inequality into vertical and horizontal redistribution and reranking, with applications to China and Vietnam," Policy Research Working Paper Series 3559, The World Bank. [Downloadable!]
  2. Jean-Yves Duclos, 2006. "Equity and Equality," IZA Discussion Papers 2284, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Abdelkrim Araar & Jean-Yves Duclos, 2003. "An Atkinson-Gini family of social evaluation functions," Economics Bulletin, Economics Bulletin, vol. 3(19), pages 1-16. [Downloadable!]
    Other versions:
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