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Evaluating Options for Shifting Tax Burden to Top Income Earners

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  • Jorge Onrubia
  • Fidel Picos
  • María del Carmen Rodado

Abstract

During the last decade, research on income inequality has paid special attention to top income earners. At the same time, top marginal tax rates on upper income earners have declined sharply in many OECD countries. Discussions are still open on the relationship between the increase of the income share of the richest and to what extent the tax burden should be shifted towards top income earners. In this paper we analyse these questions by building and computing a theoretical framework which extends the Kakwani (1977) expression of the Reynolds-Smolensky (1977) redistribution index using the decomposition by income groups proposed by Lambert and Aronson (1993) and Alvaredo (2011). We show that for three types of revenue-neutral reforms based on Pfähler (1984) (that consist of allocating the tax shifts from “the poor” to “the rich” proportionally to tax liabilities, net income or gross income) the redistributive effect is always higher than before the reform. When the size of the rich group is sufficiently small we also find that the best option is allocating tax changes proportionally to net income, and the worst doing it proportionally to tax liabilities.

Suggested Citation

  • Jorge Onrubia & Fidel Picos & María del Carmen Rodado, 2015. "Evaluating Options for Shifting Tax Burden to Top Income Earners," Working Papers 2015-12, FEDEA.
    • Handle: RePEc:fda:fdaddt:2015-12
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    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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