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Further Results on the Inequality Reducing Properties of Income Tax Schedules

Author

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  • Oriol Carbonell-Nicolau

    (Rutgers University)

  • Humberto Llavador

    (Universitat Pompeu Fabra and Barcelona GSE)

Abstract

Carbonell-Nicolau and Llavador (forthcoming) extend the classic result of Jakobsson (1976) and Fellman (1976)—according to which average-rate progressive, and only average-rate progressive income taxes, reduce income inequality—to the case of endogenous income. There it is shown that marginal-rate progressivity—in the sense of increasing marginal tax rates on income—is necessary for tax structures to be inequality reducing, and necessary and sufficient conditions on the social utility function are identified under which progressive and only progressive taxes are inequality reducing. This paper takes a further step and furnishes conditions on primitives under which various subclasses of progressive taxes are inequality reducing. The main results in CarbonellNicolau and Llavador (forthcoming) are obtained as particular cases of the more general framework presented here. Restricting the set of taxes allows for larger classes of preferences consistent with inequality reducing income taxation. As an illustration of the results’ practical implications, we provide a precise characterization of the subclass of (progressive) taxes that are inequality reducing for some standard families of preferences.

Suggested Citation

  • Oriol Carbonell-Nicolau & Humberto Llavador, 2018. "Further Results on the Inequality Reducing Properties of Income Tax Schedules," Departmental Working Papers 201801, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:201801
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    Cited by:

    1. Oriol Carbonell-Nicolau & Humberto Llavador, 2021. "Elasticity determinants of inequality-reducing income taxation," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(1), pages 163-183, March.
    2. Michael McAsey & Libin Mou, 2022. "Transformations that minimize the Gini index of a random variable and applications," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(2), pages 483-502, June.

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    More about this item

    Keywords

    progressive taxation; income inequality; incentive effects of taxation;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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