Income taxation and progressivity: A measure of equitability

Abstract

This paper proposes a measure of ‘equitability of taxation’, in the context of progressivity and the income tax. By postulating specifications of ‘extreme equitability’ and ‘extreme inequitability’ of a tax system, the paper advances a measure of tax equitability as the normalised area distance of a ‘tax concentration curve’ from its most inequitable version. The measure is derived, and a procedure is outlined for the decomposition of differences in the measure across regimes into a ‘distribution effect’ and a ‘tax system’ effect. A criterion is established for asserting ‘unambiguously greater equitability’ in comparisons across regimes, in terms of a dominance relation akin to the Lorenz quasi‐ordering. The measure is illustrated with the help of numerical examples.