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Redistribution, horizontal inequity, and reranking: Direct taxation in the UK, 1977–2020

Author

Listed:
  • Nicolas Hérault

    (University of Bordeaux and University of Melbourne)

  • Stephen P. Jenkins

    (LSE and IZA)

Abstract

We decompose the redistributive effect of direct taxes into vertical, horizontal, and reranking components applying the methods of Urban and Lambert (Public Finance Review, 2008). Inthe first such application to the UK, and using yearly data covering 1977–2020, we find thatredistributive effect increased over the period. However, there is no clear trend in horizontalinequity and this component forms a very small fraction of total redistributive effect bycomparison with reranking and especially vertical components. It is also the verticalcomponent that best tracks trends in redistributive effect. We give specific attention to thechoice of the bandwidth used to define ‘close equals’ in terms of pre-tax income. We alsoshow that implausible estimates of the horizontal inequity component arise for some yearsregardless of bandwidth used.

Suggested Citation

  • Nicolas Hérault & Stephen P. Jenkins, 2023. "Redistribution, horizontal inequity, and reranking: Direct taxation in the UK, 1977–2020," Working Papers 660, ECINEQ, Society for the Study of Economic Inequality.
    • Handle: RePEc:inq:inqwps:ecineq2023-660
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    File URL: http://www.ecineq.org/milano/WP/ECINEQ2023-660.pdf
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    References listed on IDEAS

    as
    1. van de Ven, Justin & Creedy, John & Lambert, Peter J, 2001. "Close Equals and Calculation of the Vertical, Horizontal and Reranking Effects of Taxation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(3), pages 381-394, July.
    2. Jenkins, Stephen P., 1988. "Empirical measurement of horizontal inequity," Journal of Public Economics, Elsevier, vol. 37(3), pages 305-329, December.
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    4. Aronson, J Richard & Johnson, Paul & Lambert, Peter J, 1994. "Redistributive Effects and Unequal Income Tax Treatment," Economic Journal, Royal Economic Society, vol. 104(423), pages 262-270, March.
    5. Plotnick, Robert, 1982. "The concept and measurement of horizontal inequity," Journal of Public Economics, Elsevier, vol. 17(3), pages 373-391, April.
    6. Ivica Urban & Peter J. Lambert, 2008. "Redistribution, Horizontal Inequity, and Reranking," Public Finance Review, , vol. 36(5), pages 563-587, September.
    7. 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.
    8. Justin Van De Ven & John Creedy & Peter J. Lambert, 2001. "Close Equals and Calculation of the Vertical, Horizontal and Reranking Effects of Taxation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(3), pages 381-394, July.
    9. Plotnick, Robert, 1981. "A Measure of Horizontal Inequity," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 283-288, May.
    10. Aronson, J. Richard & Lambert, Peter J., 1994. "Decomposing the Gini Coefficient to Reveal the Vertical, Horizontal, and Reranking Effects of Income Taxation," National Tax Journal, National Tax Association, vol. 47(2), pages 273-94, June.
    11. Aronson, J. Richard & Lambert, Peter J., 1994. "Decomposing the Gini Coefficient to Reveal the Vertical, Horizontal, and Reranking Effects of Income Taxation," National Tax Journal, National Tax Association;National Tax Journal, vol. 47(2), pages 273-294, June.
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    More about this item

    Keywords

    Redistributive effect; redistribution; horizontal inequity; reranking; Urban-Lambert decomposition; income tax;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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