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Taxation, Reranking and Equivalence Scales

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Abstract

This paper considers whether an equivalence scale implicit in transfer policy can be inferred from summary measures of reranking (whereby the rank order of pre-tax incomes is different from that of the post-tax distribution). It is conjectured that, if the government has a distributional objective and formulates tax policy with a view to equitable treatment of income units, then adopting the scale that is implicit in government transfer policy should identify only the reranking that has no equity foundation. This motivates the question: Is the incidence of reranking associated with a transfer system minimised by the equivalence scale that is implicit in the transfer system? The analysis presented in this paper suggests that the equivalence scale which minimises reranking, while not necessarily equal to the closest approximation to the one that is implicit in transfer policy, is nevertheless in its vicinity.

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  • Justin van de Ven & John Creedy, 2003. "Taxation, Reranking and Equivalence Scales," Treasury Working Paper Series 03/11, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:03/11
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    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2003/03-11/twp03-11.pdf
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    Citations

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    Cited by:

    1. John Pickering & Duncan Matthews, 1999. "Rule Making in Pursuit of a Single European Market," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(3), pages 399-416.
    2. John Creedy & Jamas Enright & Norman Gemmell & Nick McNabb, 2008. "Equity and Efficiency Measures of Tax-Transfer Systems: Some Evidence for New Zealand," Treasury Working Paper Series 08/04, New Zealand Treasury.
    3. Koeniger, Winfried, 2001. "Labor and Financial Market Interactions: The Case of Labor Income Risk and Car Insurance in the UK 1969-95," IZA Discussion Papers 240, Institute for the Study of Labor (IZA).
    4. John Creedy, 2006. "Evaluating Policy: Welfare Weights And Value Judgements," Department of Economics - Working Papers Series 971, The University of Melbourne.

    More about this item

    Keywords

    Adult equivalence scales; reranking; horizontal equity;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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