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How Did the ‘Dualization’ of the Spanish Income Tax Affect Horizontal Equity? Assessing its Impact Using Copula Functions

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  • Carlos Díaz-Caro

    (Universidad de Extremadura)

  • Jorge Onrubia

    (Instituto Complutense de Estudios Internacionales)

Abstract

The aim of this paper is to assess horizontal inequity (HI) caused by the introduction of a (semi-) dual structure for the Spanish personal income tax (PIT), adopting a copula function-based measurement framework. Following Bø et al. (2012), we estimate the Clayton, Frank and Gumbel copulas, belonging to the Archimedean class, to quantify the impact of the 2007 Spanish PIT reform on HI, comparing it with the previous tax design applied in 2006. In order to identify possible anticipation and adaptation effects, the analysis covers the 2004-2010 period. This research employs microdata from the Spanish PIT Return Panel. Results reveal two effects of the reform on the HI working in opposite directions: while the partition of the taxable income into two bases (one is taxed at ˜at rate) increases the HI, the transformation of personal and family allowances into tax credits reduces it. The predominance of one effect over the other depends on the equivalence scale applied.

Suggested Citation

  • Carlos Díaz-Caro & Jorge Onrubia, 2019. "How Did the ‘Dualization’ of the Spanish Income Tax Affect Horizontal Equity? Assessing its Impact Using Copula Functions," Hacienda Pública Española / Review of Public Economics, IEF, vol. 231(4), pages 81-124, December.
    • Handle: RePEc:hpe:journl:y:2019:v:231:i:4:p:81-124
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    References listed on IDEAS

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    2. Stefano Boscolo, 2020. "On the Horizontal Inequity Effect of the Erosion of the PIT Base: The Case of Italy," Department of Economics 0176, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".

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    More about this item

    Keywords

    dual income tax; Spanish PIT; horizontal equity; copula functions; reranking.;
    All these keywords.

    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

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