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Personal Income Tax Decentralization, Inequality and Social Welfare

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This paper elaborates and evaluates a model for the decentralization of personal income tax which is consistent with the optimal redistribution model proposed by Tresch (2002), within a framework od social welfare à la Atkinson and Bourguignon (1987). Each region applies to its constituents a progressive tax, and the central government establishes a surcharge (or deduction) proportional to the income of individuals, net of the respective regional taxes. Our paper presents the conditions which permit this model to be recommended in terms of the reduction of income inequality and the increases of welfare, in each region and in the country as a whole. The theoretical results are applied to the Spanish IRPF, by the performance of various microsimulation exercises.

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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2004/17.

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Date of creation: 2004
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Handle: RePEc:cea:doctra:e2004_17

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Keywords: personal income tax; decentralization; inequality; social welfare.;

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  1. Maria Cubel & Peter Lambert, 2002. "Progression-neutral income tax reforms and horizontal inequity," Journal of Economics, Springer, Springer, vol. 9(1), pages 1-8, December.
  2. Fellman, J, 1976. "The Effect of Transformations on Lorenz Curves," Econometrica, Econometric Society, Econometric Society, vol. 44(4), pages 823-24, July.
  3. Ebert, Udo, 1997. "Social Welfare When Needs Differ: An Axiomatic Approach," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 64(254), pages 233-44, May.
  4. CREMER, Helmuth & FOURGEAUD, Virginie & LEITE-MONTEIRO, Manuel & MARCHAND, Maurice, . "Mobility and redistribution: A survey," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1371, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Udo Ebert & Patrick Moyes, 2003. "Equivalence Scales Reconsidered," Econometrica, Econometric Society, Econometric Society, vol. 71(1), pages 319-343, January.
  6. Lambert, Peter J, 1993. "Inequality Reduction through the Income Tax," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 60(239), pages 357-65, August.
  7. Moyes, Patrick & Shorrocks, Anthony, 1998. "The impossibility of a progressive tax structure," Journal of Public Economics, Elsevier, Elsevier, vol. 69(1), pages 49-65, July.
  8. Wellisch,Dietmar, 2000. "Theory of Public Finance in a Federal State," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521630351.
  9. Udo Ebert, 1999. "Using equivalent income of equivalent adults to rank income distributions," Social Choice and Welfare, Springer, Springer, vol. 16(2), pages 233-258.
  10. Atkinson, A. B. & Bouguignon, F. & Chiappori, P. A., 1988. "What do we learn about tax reform from international comparisons? France and Britain," European Economic Review, Elsevier, Elsevier, vol. 32(2-3), pages 343-352, March.
  11. Udo Ebert & Patrick Moyes, 2000. "Adjusting Incomes for Needs: Can One Avoid Equivalence Scales?," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0917, Econometric Society.
  12. Maria Cubel & Peter J. Lambert, 2002. "A Regional Approach to Income Tax Reform," Public Finance Review, , , vol. 30(2), pages 124-143, March.
  13. Nuria Badenes & Julio López-Laborda & Jorge Onrubia & Jesús Ruiz-Huerta, 2001. "Simplification and Decentralization of the Income Tax," Public Finance Review, , , vol. 29(1), pages 49-60, January.
  14. Udo Ebert, 2000. "Equivalizing Incomes: A Normative Approach," International Tax and Public Finance, Springer, Springer, vol. 7(6), pages 619-640, December.
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