Base independence in the analysis of tax policy effects: with an application to Norway 1992–2004

Abstract

The analysis contrasts results of two recently expounded micro-level data approaches to derive robust intertemporal characterizations of redistributional effects of income tax schedules; the fixed-income procedure of Kasten, Sammartino and Toder (1994) and the transplant-and-compare method of Dardanoni and Lambert (2002). Our study is normative in that the Blackorby and Donaldson (1984) index of tax progressivity is employed. This enables contributions from vertical redistribution and horizontal inequity also to be assessed, using for the latter one classical measure and one no reranking measure. When the competing methodologies are applied to Norwegian data for 1992-2004, their respective strengths and weaknesses are revealed. The transplant-and-compare procedure is found to have a number of advantages.

Redistributive Effects on Income Tax Rates and Tax Base 1984-2009: Evidence from Japanese Tax Reforms

“…A number of studies associated with redistributive effects of income tax reforms in the OECD countries have been accumulated in recent years (e.g., Bishop et al, 1997;Lambert and Thoresen, 2009;Thoresen, 2004;Thoresen et al, 2011). However, despite the existence of major income tax reforms, few researchers have addressed the equalizing effects of the Japanese tax reforms.…”

“…A number of empirical studies have attempted to find the association between tax reforms with declining progressivity and the redistributive effect of income taxation, by measuring the disparity of altered income distributions between pre-and posttax incomes (e.g., Bishop et al, 1997;Lambert and Thoresen, 2009;Thoresen, 2004). However, despite the fact that changes in tax deductions and tax rates, as seen in tax reforms in OECD countries in the 1980s and 1990s, are expected to have distinct effects on progressivity, no study has been aimed at distinguishing the redistributive effects of tax rates from those of the tax base, caused by tax reforms in the period.…”

“…First, the redistributive effects of Japanese personal income tax declined between 1984 and 2009. Some empirical studies found that the redistributive effects of personal income tax did not change after tax reforms in the 1980s and 1990s in OECD countries, including Sweden, the UK, and the US (Bishop et al, 1997;Kasten et al, 1994), but others stated that they did decrease after the tax changes in the 1990s and 2000s in Norway (Lambert and Thoresen, 2009;Thoresen, 2004;Thorensen et al, 2011). Japanese income tax reforms in the 1980s-2000s led to lower redistributive effects on personal income taxes.…”

Horizontal inequity under a dual income tax system: principles and measurement

“…To the extent that the association between pre-tax and post-tax income rankings before the reform is affected by the change of income definition, it is expected that we observe less correspondence when imputing firm profits. One moderating factor is that business ownership is very much a high income characteristic in Norway (Lambert and Thoresen, 2009), which means that most business owners are found at the high end of the income distribution, both before and after the adjustments of the income concept. Accordingly, it is expected that the HI effects of the closing of the gap between wage income and dividend taxation by the reform will be more clearly captured by this alternative income concept, since dividend taxation is more pronounced and higher dividend taxation is expected to contribute to higher degree of association between pre-tax and post-tax rankings.…”

Tax Policy and Income Inequality in the U.S., 1979-2007

“…See also Bargain and Callan (2010) for France and Ireland. A related concept for the comparison of tax regimes with respect to progressivity -the transplant-andcompare procedure (Dardanoni and Lambert 2002) -is applied by Lambert and Thoresen (2009) for Norway. They isolate the tax policy e¤ect by comparing pre-tax income distributions which have been estimates for the elasticity of taxable income (ETI, see Saez et al 2012 for a survey) in order to account for indirect policy e¤ects due to behavioral responses (such as labor supply, income shifting or migration).…”