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Nontaxable income and necessary consumption: the Rousseau’s paradox of fiscal egalitarianism

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  • Faíña, Andres / A.
  • Lopez-Rodriguez, Jesus / J.
  • Varela, Laura / L.

Abstract

The traditional concept of a strict minimum of necessary consumption and nontaxable income equal for all taxpayers embedded in most current income-tax systems is the result of a paradox of fiscal egalitarianism. The paper shows that substituting the traditional notion of a strict minimum of nontaxable income (Surplus Income Tax Method) for a scheme of growing personal allowances to meet the amounts of necessary consumption required by the different living standards of the taxpayers (Discretionary Income Tax Method) generates an income-tax scheme more progressive than the traditional one. In the paper we also show that this alternative proposal for nontaxable incomes generates an after-tax income distribution less unequal (Lorenz dominance) and superior in terms of social welfare (Atkinson, 1970).

Suggested Citation

  • Faíña, Andres / A. & Lopez-Rodriguez, Jesus / J. & Varela, Laura / L., 2011. "Nontaxable income and necessary consumption: the Rousseau’s paradox of fiscal egalitarianism," MPRA Paper 32900, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:32900
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    References listed on IDEAS

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    1. Young, H Peyton, 1990. "Progressive Taxation and Equal Sacrifice," American Economic Review, American Economic Association, vol. 80(1), pages 253-266, March.
    2. Keen, Michael & Papapanagos, Harry & Shorrocks, Anthony, 2000. "Tax Reform and Progressivity," Economic Journal, Royal Economic Society, vol. 110(460), pages 50-68, January.
    3. Moyes, Patrick, 2003. "Redistributive effects of minimal equal sacrifice taxation," Journal of Economic Theory, Elsevier, vol. 108(1), pages 111-140, January.
    4. Mitra, Tapan & Ok, Efe A., 1997. "On the Equitability of Progressive Taxation," Journal of Economic Theory, Elsevier, vol. 73(2), pages 316-334, April.
    5. Smith, Adam, 1776. "An Inquiry into the Nature and Causes of the Wealth of Nations," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1776.
    6. Vito Tanzi, 2010. "Tax Systems in the OECD: Recent Evolution, Competition and Convergence," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1012, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    nontaxable income; necessary consumption; progressivity; tax burden; income distribution;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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