IMPACT OF TAXES AND TRANSFERS

More documents

Recommendations

Info

Enami, Lustig, Aranda, No. 25, November 2016 Adding a Transfer that is Regressive Neutral Progressive ρ K B < 0 ρ K B = 0 ρ K B > 0 A system with a Tax that is Regressive П K T < 0 Neutral П K T = 0 Progressive П K T > 0 Less unequalizing if and only if Condition 36 holds Always unequalizing Always equalizing less Always unequalizing less No change in equality Always equalizing less Always unequalizing Always equalizing less More equalizing if and only if Condition 36 holds 2.2.2. Conditions for the Multiple Taxes and Transfers Case This section generalizes the preceding discussion for a system with only one tax and one transfer. In the following sub-sections, we focus on the conditions for a tax or transfer to have an equalizing marginal contribution in a system with multiple other taxes and transfers. Is the Marginal Contribution of a Tax Equalizing? Assuming no-reranking, for a tax to be equalizing (if it is added to a system with other taxes and transfers in place), the following inequality has to hold: (39) П RS RS N > П N\Tk . In other words, the redistributive effect is larger with the tax of interest than without it. 38
Enami, Lustig, Aranda, No. 25, November 2016 The element on the right-hand side shows the change in the Gini coefficient (from pre-fiscal to post-fiscal income) when all taxes and transfers other than tax T k are in place. Without loss of generality and for simplicity, we will set k = 1. Using equation 13, we have ∑ n RS m RS i=1 (1−g i )П Ti +∑ j=1(1+b j )ρ Bj 1−∑n i=1 g i +∑m > ∑ n (1−g i )П RS m RS i=2 T +∑ i j=1(1+b j )ρ Bj j=1 b j 1−∑n i=2 g i +∑m j=1 b j . The analysis goes similarly. After some rearranging, we have (40) П RS T1 > ( −g 1 ) ( ∑ 1−g 1 or equivalently, n (1−g i )П RS m RS i=2 T +∑ (1+b i j=1 j )ρ Bj 1−∑n i=2 g i +∑m j=1 b j ) (40b) K > − ( ∑ g iП Ti П T1 n K m K i=2 +∑j=1 b j ρ Bj 1−∑n i=2 g i +∑m j=1 b j ). Therefore, for T 1 to be equalizing when (n − 1) taxes and m benefits are already in place, the following conditions apply. Condition 41: If and only if П RS T1 > ( −g 1 ) ( ∑ 1−g 1 − ( ∑ n g K m K i=2 iП Ti +∑j=1 b j ρ Bj 1−∑n i=2 g i +∑m j=1 b j n (1−g i )П RS m RS i=2 T +∑ (1+b i j=1 j )ρ Bj 1−∑n i=2 g i +∑m j=1 b j )), then adding T 1 reduces the inequality. ) (or П T1 K > Condition 42: 39
Page 1 and 2: ANALYTIC FOUNDATIONS: MEASURING THE
Page 3 and 4: ANALYTIC FOUNDATIONS: MEASURING THE
Page 5 and 6: Enami, Lustig, Aranda, No. 25, Nove
Page 37: Enami, Lustig, Aranda, No. 25, Nove

IMPACT OF TAXES AND TRANSFERS

Create successful ePaper yourself

Delete template?

Save as template?