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Close Equals and Calculation of the Vertical, Horizontal and Reranking Effects of Taxation

Author

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  • Creedy, J.
  • Lambert, P.J.
  • van de Ven, J.

Abstract

This paper examines the Gini-based method of decomposing the redistributive effect of taxation into vertical, horizontal, and reranking components. The consequences of different bandwidth choices, used to identify close-equals groups to estimate the horizontal effect, are discussed. Two opposing forces are identified which militate against choosing a very small or large bandwidth. It is suggested that the best procedure is to use the bandwidth that maximises the estimated vertical component, compute the reranking component exactly as a sample statistic and obtain the horizontal effect by subtraction. The technique is used to analyse the progressivity of tax and transfer payments in Australia.

Suggested Citation

  • Creedy, J. & Lambert, P.J. & van de Ven, J., 2001. "Close Equals and Calculation of the Vertical, Horizontal and Reranking Effects of Taxation," Department of Economics - Working Papers Series 781, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:781
    Note: This paper has now been published in: Van de Ven, J., Creedy, J. and Lambert P. (2001), Close Equals and Calculation of the Vertical, Horizontal and Reranking Effects of Taxation, Oxford Bulletin of Economics and Statistics, 63, no.3, pp. 381-394.
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    Keywords

    TAXATION ; DISTRIBUTION ; STATISTICS;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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