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A theoretical and practical study on linear reforms of dual taxes

  • Samuel Calonge

    ()

    (CREB, Dpt. of Econometrics, Statistics and Spanish Economy, Universitat de Barcelona)

  • Oriol Tejada

    ()

    (Dpt. of Actuarial, Financial and Economic Mathematics, Universitat de Barcelona)

We extend the linear reforms introduced by Pf¨ahler (1984) to the case of dual taxes. We study the relative effect that linear dual tax cuts have on the inequality of income distribution -a symmetrical study can be made for dual linear tax hikes-. We also introduce measures of the degree of progressivity for dual taxes and show that they can be connected to the Lorenz dominance criterion. Additionally, we study the tax liability elasticity of each of the reforms proposed. Finally, by means of a microsimulation model and a considerably large data set of taxpayers drawn from 2004 Spanish Income Tax Return population, 1) we compare different yield-equivalent tax cuts applied to the Spanish dual income tax and 2) we investigate how much income redistribution the dual tax reform (Act ‘35/2006’) introduced with respect to the previous tax.

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File URL: http://www.xreap.cat/RePEc/xrp/pdf/XREAP2009-1.pdf
File Function: First version, 2009
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File URL: http://www.xreap.cat/RePEc/xrp/pdf/XREAP2009-1.pdf
File Function: Revised version, 2009
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Paper provided by Xarxa de Referència en Economia Aplicada (XREAP) in its series Working Papers with number XREAP2009-01.

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Length: 45 pages
Date of creation: Feb 2009
Date of revision: Feb 2009
Handle: RePEc:xrp:wpaper:xreap2009-01
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  1. Herwig Immervoll, 2005. "Falling Up The Stairs: The Effects Of "Bracket Creep" On Household Incomes," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(1), pages 37-62, 03.
  2. Pfahler, Wilhelm, 1984. "`Linear' income tax cuts: distributional effects, social preferences and revenue elasticities," Journal of Public Economics, Elsevier, vol. 24(3), pages 381-388, August.
  3. Hutton, John P. & Lambert, Peter J., 1979. "Income tax progressivity and revenue growth," Economics Letters, Elsevier, vol. 3(4), pages 377-380.
  4. Fries, Albert & Hutton, John P & Lambert, Peter J, 1982. "The Elasticity of the U.S. Individual Income Tax: Its Calculation, Determinants and Behavior," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 147-51, February.
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