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Nontaxable income and necessary consumption: the Rousseau’s paradox of fiscal egalitarianism

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  • Faíña, Andres / A.
  • Lopez-Rodriguez, Jesus / J.
  • Varela, Laura / L.

Abstract

The traditional concept of a strict minimum of necessary consumption and nontaxable income equal for all taxpayers embedded in most current income-tax systems is the result of a paradox of fiscal egalitarianism. The paper shows that substituting the traditional notion of a strict minimum of nontaxable income (Surplus Income Tax Method) for a scheme of growing personal allowances to meet the amounts of necessary consumption required by the different living standards of the taxpayers (Discretionary Income Tax Method) generates an income-tax scheme more progressive than the traditional one. In the paper we also show that this alternative proposal for nontaxable incomes generates an after-tax income distribution less unequal (Lorenz dominance) and superior in terms of social welfare (Atkinson, 1970).

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32900.

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Date of creation: 11 Aug 2011
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Handle: RePEc:pra:mprapa:32900

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Keywords: nontaxable income; necessary consumption; progressivity; tax burden; income distribution;

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  1. Moyes, Patrick, 2003. "Redistributive effects of minimal equal sacrifice taxation," Journal of Economic Theory, Elsevier, Elsevier, vol. 108(1), pages 111-140, January.
  2. Mitra, T. & Ok, E.A., 1995. "On the Equitability of Progressive Taxation," Working Papers, C.V. Starr Center for Applied Economics, New York University 95-25, C.V. Starr Center for Applied Economics, New York University.
  3. Young, H Peyton, 1990. "Progressive Taxation and Equal Sacrifice," American Economic Review, American Economic Association, American Economic Association, vol. 80(1), pages 253-66, March.
  4. Keen, Michael & Papapanagos, Harry & Shorrocks, Anthony, 2000. "Tax Reform and Progressivity," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(460), pages 50-68, January.
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