Progressivity and Redistribution in Non‐revenue Neutral Tax Reforms: The Level and Distance Effects

Abstract

Kakwani and Reynolds–Smolensky indices are used in the literature to measure the progressivity and redistributive capacity of taxes. These indices may, however, show some limits when used to make normative assessments about non‐revenue neutral tax reforms. Two approaches have traditionally been taken to overcome this problem. The first of these consists of comparing after‐tax income distributions through generalized Lorenz (concentration) curves. The second approach is based on the decomposition of changes in the Reynolds–Smolensky index into changes in the average tax rate and variations in progressivity. Nonetheless, this decomposition between the average tax rate and progressivity may be further exploited to obtain some information that can be relevant to assess tax reforms. The main aim of this study is to draw up some indicators that can be useful to quantify the effects of non‐revenue neutral tax reforms. These indicators are used to investigate the last personal income tax reforms that have taken place in Spain.

Inflation and income distribution in Central America, Mexico, Panama, and the Dominican Republic

“…Finally, we have employed the approach developed by Díaz de Sarralde, Garcimartín, and Ruiz‐Huerta (2013) in the analysis of the distributional effects of tax reforms to decompose the effect of inflation on inequalities between the impact of the overall inflation rate and the change in income differences across households. Thus, let us define the Gini index for discrete income distributions aswhere µ is the average income, x i and x j are incomes i and j , and N is the total population.…”

Observations from the U.S. Federal Income Tax to Distinguish Between Measures of Progressivity and Redistributive Capacity

“…A progressive tax (i) places a disproportionate amount of the burden of paying the tax on high income individuals, thereby (ii) making the final distribution of income more equal. Related to this distinction, de Sarralde et al (2013) made an insightful observation regarding how some tax progressivity indices quantify the degree to which the burden of paying the tax is borne by different segments of the population, while others simply quantify the degree to which the tax alters the distribution of income. Using this as motivation, numerical values of two different classes of progressivity indices (those previously defined by Kakwani, Suits, Stroup, and Mathews and those previously defined by Musgrave & Thin and Reynolds & Smolensky) were determined over the entire adult population for the U.…”