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Classical Horizontal Inequity and Reranking: an Integrating Approach

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  • Duclos, Jean-Yves
  • Jalbert, Vincent
  • Araar, Abdelkrim

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 into 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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Bibliographic Info

Paper provided by CIRPEE in its series Cahiers de recherche with number 0306.

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Date of creation: 2003
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Handle: RePEc:lvl:lacicr:0306

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Keywords: Horizontal Inequity; Reranking; Tax Equity; Inequality; Canadian Tax System;

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Citations

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Cited by:
  1. Jean-Yves Duclos, 2006. "Equity and Equality," Cahiers de recherche 0629, CIRPEE.
  2. Adam Wagstaff & Marcel Bilger & Zurab Sajaia & Michael Lokshin, 2011. "Health Equity and Financial Protection : Streamlined Analysis with ADePT Software," World Bank Publications, The World Bank, number 2306, February.
  3. Allanson, Paul & Petrie, Dennis, 2013. "Longitudinal methods to investigate the role of health determinants in the dynamics of income-related health inequality," Journal of Health Economics, Elsevier, vol. 32(5), pages 922-937.
  4. Paul Allanson, 2008. "On the characterisation and measurement of the welfare effects of income mobility from an ex-ante perspective," Dundee Discussion Papers in Economics 219, Economic Studies, University of Dundee.
  5. Sami Bibi & Jean-Yves Duclos, 2004. "Equity and Policy Effectiveness with Imperfect Targeting," Working Papers 0423, Economic Research Forum, revised Oct 2004.
  6. Bolle, Friedel & Liepmann, Hannah & Vogel, Claudia, 2012. "How much social insurance do you want? An experimental study," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1170-1181.
  7. O'Neill, Donal & Van Kerm, Philippe, 2004. "A new approach for analysing income convergence across countries," IRISS Working Paper Series 2004-03, IRISS at CEPS/INSTEAD.
  8. Bilger, Marcel, 2008. "Progressivity, horizontal inequality and reranking caused by health system financing: A decomposition analysis for Switzerland," Journal of Health Economics, Elsevier, vol. 27(6), pages 1582-1593, December.
  9. Essama-Nssah, B., 2008. "Assessing the redistributive effect of fiscal policy," Policy Research Working Paper Series 4592, The World Bank.
  10. Ivica Urban, 2013. "Implementation Issues in the Duclos–Jalbert–Araar Decomposition of Redistributive Effect," Public Finance Review, , vol. 41(1), pages 121-143, January.
  11. Peter J. Lambert & Giuseppe Lanza, 2003. "The effect on inequality of changing one or two incomes," IFS Working Papers W03/15, Institute for Fiscal Studies.
  12. Paul Allanson, 2012. "On the characterization and economic evaluation of income mobility as a process of distributional change," Journal of Economic Inequality, Springer, vol. 10(4), pages 505-528, December.
  13. Cavagnero, Eleonora & Bilger, Marcel, 2010. "Equity during an economic crisis: Financing of the Argentine health system," Journal of Health Economics, Elsevier, vol. 29(4), pages 479-488, July.

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