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Partial Horizontal Inequity Orderings: A non-parametric Approach

We provide a partial ordering view of horizontal inequity (henceforth HI), based on the Lorenz criterion, associated with different post-tax income distributions and a (bistochastic) nonparametric estimated benchmark distribution. As a consequence, several measures consistent with the Lorenz criterion can be rationalized. In addition, we establish the so-called horizontal inequity transfer principle, which imposes a normative minimum requirement that any HI measure must satisfy. Our proposed HI ordering is consistent with this principle. Moreover, we adopt a cardinal view to decompose the total effect of a tax system into a welfare gain due to HI-free income redistribution and a welfare loss due to HI, without any additive decomposable restriction on the indices. Hence, more robust tests can be applied. Other decompositions in the literature are seen as particular cases.

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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2004/01.

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Length: 40 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:cea:doctra:e2004_01
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  1. King, Mervyn A, 1983. "An Index of Inequality: With Applications to Horizontal Equity and Social Mobility," Econometrica, Econometric Society, vol. 51(1), pages 99-115, January.
  2. Raúl Camarero & Octavio Herrero & Ignacio Zubiri, 1993. "La medición de la inequidad horizontal: teoría y una aplicación al caso de Vizcaya," Investigaciones Economicas, Fundación SEPI, vol. 17(2), pages 333-362, May.
  3. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  4. Cowell, Frank A. & Victoria-Feser, Maria-Pia, 1996. "Poverty measurement with contaminated data: A robust approach," European Economic Review, Elsevier, vol. 40(9), pages 1761-1771, December.
  5. Jenkins, Stephen P., 1988. "Empirical measurement of horizontal inequity," Journal of Public Economics, Elsevier, vol. 37(3), pages 305-329, December.
  6. Plotnick, Robert, 1981. "A Measure of Horizontal Inequity," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 283-88, May.
  7. Mervyn A. King, 1980. "An Index of Inequality: With Applications to Horizontal Equity and Social Mobility," NBER Working Papers 0468, National Bureau of Economic Research, Inc.
  8. Dasgupta, Partha & Sen, Amartya & Starrett, David, 1973. "Notes on the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 6(2), pages 180-187, April.
  9. Davidson, Russell & Duclos, Jean-Yves, 1998. "Statistical Inference for Stochastic Dominance and for the Measurement of Poverty and Inequality," Cahiers de recherche 9805, Université Laval - Département d'économique.
  10. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Differences in Needs and Assessment of Income Distributions," Bulletin of Economic Research, Wiley Blackwell, vol. 44(2), pages 77-124, April.
  11. 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.
  12. Peter Lambert & Simon Parker, 1997. "Testing for horizontal inequity econometrically," IFS Working Papers W97/18, Institute for Fiscal Studies.
  13. Stephen Jenkins & Peter Lambert, . "Horizontal Inequity Measurement: A Basic Reassessment," Discussion Papers 96/21, Department of Economics, University of York.
  14. Lambert, P & X. Ramos, 1995. "Vertical redistribution and horizontal inequity," IFS Working Papers W95/01, Institute for Fiscal Studies.
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