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Horizontal Equity and Progression When Equivalence Scales Are Not Constant

Author

Listed:
  • Udo Ebert

    (University of Oldenburg, Germany)

  • Peter J. Lambert

    (University of Oregon)

Abstract

Household needs must be taken into account when designing an equitable income tax. In this article, the authors are concerned with the use of equivalence scales to achieve horizontal equity. Equivalence scales may be relative or absolute, constant or income-varying. If the equivalence scale is independent of income, horizontal equity is achieved by a form of income splitting (the relative case) or the use of exemptions (the absolute case). However, once one allows the equivalence scale to vary with income, the distinction between relative and absolute scales all but disappears (because one can adjust one form to imitate the other), but a new complication arises because scale values may differ at before and after tax income levels. The authors explore various possible criteria for horizontal equity in this scenario and their implications for vertical equity. In particular, the authors articulate an “equal progression among equals†criterion and showittobe achievable along with horizontal equity under specified conditions.

Suggested Citation

  • Udo Ebert & Peter J. Lambert, 2004. "Horizontal Equity and Progression When Equivalence Scales Are Not Constant," Public Finance Review, , vol. 32(4), pages 426-440, July.
    • Handle: RePEc:sae:pubfin:v:32:y:2004:i:4:p:426-440
    DOI: 10.1177/1091142104264422
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    References listed on IDEAS

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    1. Donaldson, D. & Pendakur, K., 1999. "Equivalent-Income Functions and Income-Dependent Equivalence Scales," Discussion Papers dp99-8, Department of Economics, Simon Fraser University.
    2. Lambert, Peter J. & Yitzhaki, Shlomo, 1997. "Income tax credits and exemptions," European Journal of Political Economy, Elsevier, vol. 13(2), pages 343-351, May.
    3. Ebert, Udo & Moyes, Patrick, 2000. "Consistent Income Tax Structures When Households Are Heterogeneous," Journal of Economic Theory, Elsevier, vol. 90(1), pages 116-150, January.
    4. Udo Ebert & Peter J. Lambert, 1999. "Combined Income Taxes and Tax‐Benefit Systems," The Economic Record, The Economic Society of Australia, vol. 75(4), pages 397-404, December.
    5. Udo Ebert & Peter J. Lambert, 2004. "Horizontal Equity and Progression When Equivalence Scales Are Not Constant," Public Finance Review, , vol. 32(4), pages 426-440, July.
    6. Udo Ebert, 2000. "Equivalizing Incomes: A Normative Approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(6), pages 619-640, December.
    7. Denis Conniffe, 1992. "The Non‐Constancy Of Equivalence Scales," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 38(4), pages 429-443, December.
    8. Conniffe, Denis, 1992. "The Non-constancy of Equivalence Scales," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 38(4), pages 429-443, December.
    9. Seneca, Joseph J & Taussig, Michael K, 1971. "Family Equivalence Scales and Personal Income Tax Exemptions for Children," The Review of Economics and Statistics, MIT Press, vol. 53(3), pages 253-262, August.
    10. Ebert, Udo, 1997. "Social Welfare When Needs Differ: An Axiomatic Approach," Economica, London School of Economics and Political Science, vol. 64(254), pages 233-244, May.
    11. Ebert, Udo & Lambert, Peter J, 1999. "Combined Income Taxes and Tax-Benefit Systems," The Economic Record, The Economic Society of Australia, vol. 75(231), pages 397-404, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Justin Ven & Nicolas Hérault & Francisco Azpitarte, 2017. "Identifying tax implicit equivalence scales," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(3), pages 257-275, September.
    2. Udo Ebert, 2011. "The redistribution of income when needs differ," Working Papers V-331-11, University of Oldenburg, Department of Economics, revised Feb 2011.
    3. Bönke, Timm & Eichfelder, Sebastian, 2008. "Horizontale Gleichheit im Abgaben-Transfersystem: eine Analyse äquivalenter Einkommen von Arbeitnehmern in Deutschland," arqus Discussion Papers in Quantitative Tax Research 36, arqus - Arbeitskreis Quantitative Steuerlehre.
    4. repec:old:wpaper:331 is not listed on IDEAS
    5. Udo Ebert & Peter J. Lambert, 2004. "Horizontal Equity and Progression When Equivalence Scales Are Not Constant," Public Finance Review, , vol. 32(4), pages 426-440, July.
    6. Arnaldur Kristjánsson & Peter Lambert, 2015. "Structural progression measures for dual income tax systems," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 13(1), pages 1-15, March.
    7. Luis José Imedio Olmedo & Encarnación Macarena Parrado Gallardo & María Dolores Sarrión Gavilán, 2005. "Horizontal equity, equal progression: an utilitarian approach," Hacienda Pública Española / Review of Public Economics, IEF, vol. 174(3), pages 87-115, September.
    8. Peter J. Lambert, 2004. "Income Taxation and Equity," Working Papers 2004/4, Institut d'Economia de Barcelona (IEB).
    9. repec:zbw:hohpro:331 is not listed on IDEAS
    10. Luis Ayala & Rosa Martínez & Jesús Ruiz Huerta, 2003. "Equivalence scales in tax and transfer policies," Investigaciones Economicas, Fundación SEPI, vol. 27(3), pages 593-614, September.
    11. John Muellbauer & Justin van de Ven, 2004. "Estimating Equivalence Scales for Tax and Benefits Systems," Economics Papers 2004-W06, Economics Group, Nuffield College, University of Oxford.
    12. Peter J. Lambert, 2007. "Positional equity and equal sacrifice: design principles for an EU-wide income tax?," Working Papers 0706, University of Otago, Department of Economics, revised Apr 2007.
    13. Achille VERNIZZI & Maria Giovanna MONTI & Marek KOSNY, 2006. "An overall inequality reducing and horizontally equitable tax system with application to Polish data," Departmental Working Papers 2006-15, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.

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    More about this item

    Keywords

    horizontal equity; progression; needs; equivalence scales; income tax;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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