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The Distributional Effects of Taxes and Transfers Under Alternative Income Concepts

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  • Francesco Figari
  • Alari Paulus

Abstract

This article investigates how the distribution of income changes when the standard disposable income (DI) is replaced by an extended income (EI) concept that includes the three “I†s: indirect taxes , imputed rent , and in-kind benefits . Second, it assesses the distributional effects of the main types of tax-benefit instruments under different income concepts. The analysis covers three European countries (Belgium, Greece, and the United Kingdom) characterized by substantially different tax-benefit systems. The overall redistributive effect of the tax-benefit systems depends heavily on the income concept considered and the differences across countries are smaller when considering the EI. Moreover, the common use of a narrower income concept, such as the DI, can lead to the overestimation of the redistributive effect of the cash tax-benefit instruments (in relative terms), the extent of this varying across countries, due to the size and distribution of three “I†s and the adoption of the needs-adjusted equivalence scale.

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  • Francesco Figari & Alari Paulus, 2015. "The Distributional Effects of Taxes and Transfers Under Alternative Income Concepts," Public Finance Review, , vol. 43(3), pages 347-372, May.
    • Handle: RePEc:sae:pubfin:v:43:y:2015:i:3:p:347-372
    DOI: 10.1177/1091142113506930
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    More about this item

    Keywords

    imputed rent; indirect taxes; in-kind benefits; household income; EUROMOD;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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