Horizontal inequity under a dual income tax system: principles and measurement
AbstractTax systems with separate taxation of wage and capital income, also called dual income tax systems, have gained relevance through the Mirrlees Review. Obviously, such tax systems are exposed to horizontal equity (HE) failures, or horizontal inequity (HI). HE and HI have a firm grip on assessment of fair tax policies, both from an academic point of view and in general public debate. The dual income tax system of Norway was modified by the tax reform of 2006 precisely because the previous schedule failed to deliver equal tax treatment of equals. This paper discusses the meaning and measurement of HI effects of dual income tax systems, and evaluates the development of HI for Norway over the time period 2000–2008 using micro data. A copula-based identification strategy efficiently establishes a framework for evaluations of HI over time. The dual income tax system and the early announcement of its impending revision during the period under examination created measurement problems which we had to account for by defining a new income concept for the empirical strategy. As expected, we find less HI in Norway after the reform of 2006.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 647.
Date of creation: Feb 2011
Date of revision:
Dual income tax; Horizontal inequity; Reranking; Copula estimation;
Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-03-12 (Accounting & Auditing)
- NEP-ALL-2011-03-12 (All new papers)
- NEP-LTV-2011-03-12 (Unemployment, Inequality & Poverty)
- NEP-PBE-2011-03-12 (Public Economics)
- NEP-PUB-2011-03-12 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean-Yves Duclos & Peter J. Lambert, 2000. "A normative and statistical approach to measuring classical horizontal inequity," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 87-113, February.
- Peter J. Lambert & Thor O. Thoresen, 2011. "The inequality effects of a dual income tax system," Discussion Papers 663, Research Department of Statistics Norway.
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