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Redistributive effect, progressivity and differential tax treatment : Personal income taxes in twelve OECD countries

Wagstaff, Adam; Van Doorslaer, Eddy; Van Der Burg, Hattem; Calonge, Samuel; Christiansen, Terkel; Citoni, Guido; Gerdtham, Ulf G. LU ; Gerfin, Michael; Gross, Lorna and Häkinnen, Unto, et al. (1999) In Journal of Public Economics 72(1). p.73-98
Abstract

This paper decomposes the redistributive effect of the personal income taxes (PITs) of twelve OECD countries into four components: (i) an average rate effect, (ii) a departure-from-proportionality or progressivity effect, (iii) a horizontal equity effect and (iv) a reranking effect. The product of (i) and (ii) indicates the vertical redistribution associated with the PIT and the sum of (iii) and (iv) indicates the impact on the distribution of income of differential tax treatment. The average tax rate is found to be low in France and high in the Nordic countries, and the PIT is found to be most progressive in France, Ireland and Spain, and least progressive in Denmark and Sweden. Taking (i) and (ii) together, Denmark and the US achieve... (More)

This paper decomposes the redistributive effect of the personal income taxes (PITs) of twelve OECD countries into four components: (i) an average rate effect, (ii) a departure-from-proportionality or progressivity effect, (iii) a horizontal equity effect and (iv) a reranking effect. The product of (i) and (ii) indicates the vertical redistribution associated with the PIT and the sum of (iii) and (iv) indicates the impact on the distribution of income of differential tax treatment. The average tax rate is found to be low in France and high in the Nordic countries, and the PIT is found to be most progressive in France, Ireland and Spain, and least progressive in Denmark and Sweden. Taking (i) and (ii) together, Denmark and the US achieve broadly similar levels of vertical redistributive effect. Differential treatment is found to have a much smaller effect on income redistribution (as a proportion of redistributive effect) than the vertical redistribution caused by progressivity, though there are differences between countries. These differences appear to be due principally to a different emphasis on deductions, such as tax deductibility of mortgage interest payments and insurance premiums, and on local income tax.

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Contribution to journal
publication status
published
subject
keywords
D31, H23, H24, Horizontal equity, Personal income tax, Progressivity, Redistributive effect, Reranking
in
Journal of Public Economics
volume
72
issue
1
pages
26 pages
publisher
Elsevier
external identifiers
  • scopus:0043229630
ISSN
0047-2727
DOI
10.1016/S0047-2727(98)00085-1
language
English
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no
id
66987a94-e6e2-4d98-badb-00d577a93a5f
date added to LUP
2018-10-09 12:25:11
date last changed
2018-10-22 13:31:30
@article{66987a94-e6e2-4d98-badb-00d577a93a5f,
  abstract     = {<p>This paper decomposes the redistributive effect of the personal income taxes (PITs) of twelve OECD countries into four components: (i) an average rate effect, (ii) a departure-from-proportionality or progressivity effect, (iii) a horizontal equity effect and (iv) a reranking effect. The product of (i) and (ii) indicates the vertical redistribution associated with the PIT and the sum of (iii) and (iv) indicates the impact on the distribution of income of differential tax treatment. The average tax rate is found to be low in France and high in the Nordic countries, and the PIT is found to be most progressive in France, Ireland and Spain, and least progressive in Denmark and Sweden. Taking (i) and (ii) together, Denmark and the US achieve broadly similar levels of vertical redistributive effect. Differential treatment is found to have a much smaller effect on income redistribution (as a proportion of redistributive effect) than the vertical redistribution caused by progressivity, though there are differences between countries. These differences appear to be due principally to a different emphasis on deductions, such as tax deductibility of mortgage interest payments and insurance premiums, and on local income tax.</p>},
  author       = {Wagstaff, Adam and Van Doorslaer, Eddy and Van Der Burg, Hattem and Calonge, Samuel and Christiansen, Terkel and Citoni, Guido and Gerdtham, Ulf G. and Gerfin, Michael and Gross, Lorna and Häkinnen, Unto and John, Jürgen and Johnson, Paul and Klavus, Jan and Lachaud, Claire and Lauridsen, Jørgen and Leu, Robert E. and Nolan, Brian and Peran, Encarna and Propper, Carol and Puffer, Frank and Rochaix, Lise and Rodríguez, Marisol and Schellhorn, Martin and Sundberg, Gun and Winkelhake, Olaf},
  issn         = {0047-2727},
  keyword      = {D31,H23,H24,Horizontal equity,Personal income tax,Progressivity,Redistributive effect,Reranking},
  language     = {eng},
  month        = {04},
  number       = {1},
  pages        = {73--98},
  publisher    = {Elsevier},
  series       = {Journal of Public Economics},
  title        = {Redistributive effect, progressivity and differential tax treatment : Personal income taxes in twelve OECD countries},
  url          = {http://dx.doi.org/10.1016/S0047-2727(98)00085-1},
  volume       = {72},
  year         = {1999},
}