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Horizontal Inequity can be a Good Thing

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  • Maria Cubel
  • Peter Lambert

Abstract

A switch from any given income tax schedule to a differentiated tax structure in which two groups of taxpayers are treated differently, each still facing the same local degree of progression, can induce an increase in welfare despite causing horizontal inequity. We demonstrate this result in a number of special case and make a general conjecture, the thrust of which is that society's acceptance of horizontal inequity will be second-best whenever the government must operate with a limited bundle of income tax instruments such as allowances, thresholds and marginal rates.

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  • Maria Cubel & Peter Lambert, "undated". "Horizontal Inequity can be a Good Thing," Discussion Papers 99/17, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:99/17
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    File URL: https://www.york.ac.uk/media/economics/documents/discussionpapers/1999/9917.pdf
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    1. Lambert, Peter J & Aronson, J Richard, 1993. "Inequality Decomposition Analysis and the Gini Coefficient Revisited," Economic Journal, Royal Economic Society, vol. 103(420), pages 1221-1227, September.
    2. Yitzhaki, Shlomo & Slemrod, Joel, 1991. "Welfare Dominance: An Application to Commodity Taxation," American Economic Review, American Economic Association, vol. 81(3), pages 480-496, June.
    3. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-920, July.
    4. Peter Lambert, & Xavier Ramos, 1995. "Vertical redistribution and horizontal inequity," IFS Working Papers W95/01, Institute for Fiscal Studies.
    5. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    6. 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.
    7. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931.
    8. Jean-Yves Duclos & Peter J. Lambert, 2000. "A normative and statistical approach to measuring classical horizontal inequity," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 87-113, February.
    9. Muliere, Pietro & Scarsini, Marco, 1989. "A note on stochastic dominance and inequality measures," Journal of Economic Theory, Elsevier, vol. 49(2), pages 314-323, December.
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    Cited by:

    1. Maria Cubel & Peter J. Lambert, 2002. "A Regional Approach to Income Tax Reform," Public Finance Review, , vol. 30(2), pages 124-143, March.

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