Measurement of effective tax progression
The paper first considers two properties of measures of effective progression, proportional yield neutrality and linear decomposability. It is shown that decomposability implies yield neutrality but not the converse. The concept of sensitivity of a measure to progression in various ranges of the income spectrum is then defined. This concept, when applied to the commonly used group of Lorenz curve based measure, shows them all to be sensitive only in the middle income range. A new class of measures is, therefore, introduced so that particular measures with any desired pattern of sensitivity can be constructed. The paper concludes with empirical illustrations for Canada and the U.S. The importance of separating measures of effective progression from measures of income redistribution is stressed, by showing that progressive taxes do not unambigously reduce the inequality of post tax incomes.
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