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Inference tests for tax progressivity and income redistribution: the Suits approach

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  • Jordi Arcarons

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  • Samuel Calonge

    ()

Abstract

The Suits index is often used in tax policy analysis to measure progressivity and to detect changes in progressivity over time and between different fiscal policies. The lack of attention that has been devoted to the inference issue to date is surprising. In this paper, the limiting distribution of the Suits index estimator is derived and simple plug-in formulae for the index estimator and its sampling variance are provided. By means of a simulation analysis, we show that inferences based on first-order asymptotics perform well for moderately large samples. Bootstrap-t – which uses the plug-in variance estimator – appears to perform well. The accuracy of the proposed inference tests is also illustrated by means of an empirical application that uses Spanish income tax data. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Jordi Arcarons & Samuel Calonge, 2015. "Inference tests for tax progressivity and income redistribution: the Suits approach," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 13(2), pages 207-223, June.
  • Handle: RePEc:kap:jecinq:v:13:y:2015:i:2:p:207-223
    DOI: 10.1007/s10888-014-9280-0
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    References listed on IDEAS

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    1. Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
    2. Davidson, Russell, 2009. "Reliable inference for the Gini index," Journal of Econometrics, Elsevier, vol. 150(1), pages 30-40, May.
    3. Jenkins, Stephen, 1988. "Calculating Income Distribution Indices From Micro-Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 41(1), pages 139-142, March.
    4. Jenkins, Stephen, 1988. "Calculating Income Distribution Indices from Micro-Data," National Tax Journal, National Tax Association, vol. 41(1), pages 139-42, March.
    5. Bishop, John A & Formby, John P & Zheng, Buhong, 1998. "Inference Tests for Gini-Based Tax Progressivity Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(3), pages 322-330, July.
    6. Karagiannis, Elias & Kovacevic', Milorad, 2000. " A Method to Calculate the Jackknife Variance Estimator for the Gini Coefficient," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(1), pages 119-122, February.
    7. Suits, Daniel B, 1977. "Measurement of Tax Progressivity," American Economic Review, American Economic Association, vol. 67(4), pages 747-752, September.
    8. Gastwirth, Joseph L, 1974. "Large Sample Theory of Some Measures of Income Inequality," Econometrica, Econometric Society, vol. 42(1), pages 191-196, January.
    9. Cowell, Frank A., 1989. "Sampling variance and decomposable inequality measures," Journal of Econometrics, Elsevier, vol. 42(1), pages 27-41, September.
    10. Anderson, John E. & Roy, Atrayee Ghosh & Shoemaker, Paul A., 2003. "Confidence Intervals for the Suits Index," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(1), pages 81-90, March.
    11. Biewen, Martin, 2002. "Bootstrap inference for inequality, mobility and poverty measurement," Journal of Econometrics, Elsevier, vol. 108(2), pages 317-342, June.
    12. Matti Langel & Yves Tillé, 2013. "Variance estimation of the Gini index: revisiting a result several times published," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 176(2), pages 521-540, February.
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    More about this item

    Keywords

    Asymptotic inference; Bootstrap-t ; Suits index; U-statistics; C12; H20; H23;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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