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On the equivalence between progressive taxation and inequality reduction

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  • JU, Biung-Ghi
  • MORENO-TERNERO, Juan D.

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

Abstract

We establish the precise connections between progressive taxation and inequality reduction, in a setting where the level of tax revenue to be raised is endogenously fixed and tax schemes are balanced. We show that, in contrast with the traditional literature on taxation, the equivalence between inequality reduction and the combination of progressivity and income order preservation does not always hold in this setting. However, we show that, among rules satisfying consistency and, either revenue continuity, or revenue monotonicity, the equivalence remains intact.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2007002.

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Date of creation: 01 Jan 2007
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Handle: RePEc:cor:louvco:2007002

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Keywords: progressivity; inequality reduction; income order preservation; consistency; taxation;

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References

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  1. Moulin, Herve, 2001. "Axiomatic Cost and Surplis-Sharing," Working Papers 2001-06, Rice University, Department of Economics.
  2. Fellman, J, 1976. "The Effect of Transformations on Lorenz Curves," Econometrica, Econometric Society, vol. 44(4), pages 823-24, July.
  3. Young, H. P., 1988. "Distributive justice in taxation," Journal of Economic Theory, Elsevier, vol. 44(2), pages 321-335, April.
  4. Thon, Dominique, 1987. "Redistributive properties of progressive taxation," Mathematical Social Sciences, Elsevier, vol. 14(2), pages 185-191, October.
  5. Thomson, William, 2003. "Axiomatic and game-theoretic analysis of bankruptcy and taxation problems: a survey," Mathematical Social Sciences, Elsevier, vol. 45(3), pages 249-297, July.
  6. Eichhorn, Wolfgang & Funke, Helmut & Richter, Wolfram F., 1984. "Tax progression and inequality of income distribution," Journal of Mathematical Economics, Elsevier, vol. 13(2), pages 127-131, October.
  7. Jakobsson, Ulf, 1976. "On the measurement of the degree of progression," Journal of Public Economics, Elsevier, vol. 5(1-2), pages 161-168.
  8. Kakwani, Nanak C, 1977. "Applications of Lorenz Curves in Economic Analysis," Econometrica, Econometric Society, vol. 45(3), pages 719-27, April.
  9. R. A. Musgrave & Tun Thin, 1948. "Income Tax Progression, 1929-48," Journal of Political Economy, University of Chicago Press, vol. 56, pages 498.
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Citations

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Cited by:
  1. Yoichi Kasajima & Rodrigo Velez, 2011. "Reflecting inequality of claims in gains and losses," Economic Theory, Springer, vol. 46(2), pages 283-295, February.
  2. BOSMANS, Kristof & SCHOKKAERT, Erik, 2007. "Equality preference in the claims problem: A questionnaire study of cuts in earnings and pensions," CORE Discussion Papers 2007030, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. HERRERO, Carmen & MORENO-TERNERO, Juan D. & PONTI, Giovanni, . "On the adjudication of conflicting claims: an experimental study," CORE Discussion Papers RP -2264, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. JU, Biung-Ghi & MORENO-TERNERO, Juan D., 2006. "Progressivity, inequality reduction and merging-proofness in taxation," CORE Discussion Papers 2006075, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Biung-Ghi Ju & Juan D. Moreno-Ternero, 2009. "Progressive and merging-proof taxation," Working Papers 09.12, Universidad Pablo de Olavide, Department of Economics.
  6. Kasajima, Yoichi & Velez, Rodrigo A., 2010. "Non-proportional inequality preservation in gains and losses," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 1079-1092, November.

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