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A Normative Approach to Measuring Classical Horizontal Inequity

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  • Jean-Yves Duclos
  • Peter Lambert

Abstract

This paper makes a new attack on the old problem of measuring horizontal inequity (HI). A local measure of HI is proposed, and aggregated into a global index. Whilst other approaches have captured the welfare gain which would come from eliminating HI revenue-neutrally, our global index provides a measure of the revenue gain per capita which would come from eliminating HI welfare-neutrally. When expressed as a fraction of mean post-tax income, the measure can be viewed as a negative component in the Blackorby and Donaldson (1984) index of tax progressivity, quantifying the loss of vertical performance arising from differences in the tax treatment of equals. Being money-metric, the measure can also be easily and intuitively interpreted. We propose non- parametric estimation procedures to obviate the important þidentification of equalsþ problem. To our knowledge, this provides the first consistent statistical solution to measuring classical horizontal inequity. The method is applied to the Canadian distributions of gross and net incomes in 1981 and 1990.
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Suggested Citation

  • Jean-Yves Duclos & Peter Lambert, "undated". "A Normative Approach to Measuring Classical Horizontal Inequity," Discussion Papers 97/3, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:97/3
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    File URL: https://www.york.ac.uk/media/economics/documents/discussionpapers/1997/9703.pdf
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    References listed on IDEAS

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    1. Duclos, Jean-Yves, 1995. "Assessing the Performance of an Income Tax," Bulletin of Economic Research, Wiley Blackwell, vol. 47(2), pages 115-126, April.
    2. Jenkins, Stephen P., 1988. "Empirical measurement of horizontal inequity," Journal of Public Economics, Elsevier, vol. 37(3), pages 305-329, December.
    3. Jack Habib, 1979. "Horizontal Equity with Respect to Family Size," Public Finance Review, , vol. 7(3), pages 283-302, July.
    4. Kaplow, Louis, 1989. "Horizontal Equity: Measures in Search of a Principle," National Tax Journal, National Tax Association, vol. 42(2), pages 139-54, June.
    5. Musgrave, Richard A., 1990. "Horizontal Equity, Once More," National Tax Journal, National Tax Association, vol. 43(2), pages 113-22, June.
    6. Rosen, Harvey S., 1976. "A methodology for evaluating tax reform proposals," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 105-121.
    7. Charles Blackorby & David Donaldson, 1984. "Ethical Social Index Numbers and the Measurement of Effective Tax-Benefit Progressivity," Canadian Journal of Economics, Canadian Economics Association, vol. 17(4), pages 683-694, November.
    8. Feldstein, Martin, 1976. "On the theory of tax reform," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 77-104.
    9. Polasky Stephen & Solow Andrew R., 1995. "On the Value of a Collection of Species," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 298-303, November.
    10. Manser, Marilyn E, 1979. "Comparing Households with Different Structures: The Problem of Equity," American Economic Review, American Economic Association, vol. 69(2), pages 222-226, May.
    11. 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.
    12. Plotnick, Robert, 1982. "The concept and measurement of horizontal inequity," Journal of Public Economics, Elsevier, vol. 17(3), pages 373-391, April.
    13. Duclos, Jean-Yves, 1993. "Progressivity, Redistribution, and Equity, with Application to the British Tax and Benefit System," Public Finance = Finances publiques, , vol. 48(3), pages 350-365.
    14. Charles Blackorby & David Donaldson & Maria Auersperg, 1981. "A New Procedure for the Measurement of Inequality within and among Population Subgroups," Canadian Journal of Economics, Canadian Economics Association, vol. 14(4), pages 665-685, November.
    15. Jane G. Gravelle, 1992. "Equity Effects of the Tax Reform Act of 1986," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 27-44, Winter.
    16. Kaplow, Louis, 1989. "Horizontal Equity: Measures in Search of a Principle," National Tax Journal, National Tax Association, vol. 42(2), pages 139-154, June.
    17. Musgrave, Richard A., 1990. "Horizontal Equity, Once More," National Tax Journal, National Tax Association, vol. 43(2), pages 113-122, June.
    18. Marcus C. Berliant & Robert P. Strauss, 1985. "The Horizontal and Vertical Equity Characteristics of the Federal Individual Income Tax, 1966-1977," NBER Chapters,in: Horizontal Equity, Uncertainty, and Economic Well-Being, pages 179-214 National Bureau of Economic Research, Inc.
    19. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
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    Cited by:

    1. Duclos, Jean-Yves, 1998. "Social evaluation functions, economic isolation and the Suits index of progressivity," Journal of Public Economics, Elsevier, vol. 69(1), pages 103-121, July.
    2. Bibi, Sami & Duclos, Jean-Yves, 2007. "Equity and policy effectiveness with imperfect targeting," Journal of Development Economics, Elsevier, pages 109-140.
    3. Duclos, Jean-Yves, 2006. "Equity and Equality," IZA Discussion Papers 2284, Institute for the Study of Labor (IZA).
    4. Sami Bibi & Jean-Yves Duclos, 2005. "Decomposing poverty changes into vertical and horizontal components," Bulletin of Economic Research, Wiley Blackwell, vol. 57(2), pages 205-215, April.
    5. Michael Grimm, 2007. "Removing the anonymity axiom in assessing pro-poor growth," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 5(2), pages 179-197, August.

    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • 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

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