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Is An Inequality-Neutral Flat Tax Reform Really Neutral?

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Author Info
Juan Prieto Rodríguez (Universidad de Oviedo and Instituto de Estudios Fiscales)
Juan Gabriel Rodríguez (Universidad Rey Juan Carlos de Madrid and Instituto de Estudios Fiscales)
Rafael Salas () (Universidad Complutense de Madrid and Instituto de Estudios Fiscales)

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Abstract

. Let us assume a revenue- and inequality-neutral flat tax reform shifting from a graduated-rate tax. Is this reform really neutral in terms of the income distribution? Traditionally, there has been a bias toward the inequality analysis, forgetting other relevant aspects of the income distribution. This kind of reforms implies a set of composite transfers, both progressive and regressive, even though inequality remains unchanged. This paper shows that polarization is a useful tool for characterizing this set of transfers caused by inequality-neutral tax reforms. A simulation exercise illustrates how polarization can be used to discriminate between two inequality-neutral tax alternatives.

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Paper provided by Instituto de Estudios Fiscales in its series Working Papers with number 29-04 Classification-JEL : D39, D63, H30..

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Handle: RePEc:hpe:wpaper:y:2004:i:29

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Related research
Keywords: polarization; inequality; flat tax.;

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  2. Cowell, Frank A. & Victoria-Feser, Maria-Pia, 1996. "Poverty measurement with contaminated data: A robust approach," European Economic Review, Elsevier, vol. 40(9), pages 1761-1771, December. [Downloadable!] (restricted)
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  5. Steven P. Cassou & Kevin J. Lansing, 2004. "Growth Effects of Shifting from a Graduated-rate Tax System to a Flat Tax," Economic Inquiry, Oxford University Press, vol. 42(2), pages 194-213, April. [Downloadable!] (restricted)
  6. Davies, James & Hoy, Michael, 1995. "Making Inequality Comparisons When Lorenz Curves Intersect," American Economic Review, American Economic Association, vol. 85(4), pages 980-86, September. [Downloadable!] (restricted)
  7. Russell Davidson & Jean-Yves Duclos, 2000. "Statistical Inference for Stochastic Dominance and for the Measurement of Poverty and Inequality," Econometrica, Econometric Society, vol. 68(6), pages 1435-1464, November.
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  8. Davies, James B. & Hoy, Michael, 2002. "Flat rate taxes and inequality measurement," Journal of Public Economics, Elsevier, vol. 84(1), pages 33-46, April. [Downloadable!] (restricted)
  9. Davies James & Hoy Michael, 1994. "The Normative Significance of Using Third-Degree Stochastic Dominance in Comparing Income Distributions," Journal of Economic Theory, Elsevier, vol. 64(2), pages 520-530, December. [Downloadable!] (restricted)
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