IMPACT OF TAXES AND TRANSFERS

Enami, Lustig, Aranda, No. 25, November 2016
when T(x)/x is the same for all x--the distribution of post-tax and pre-tax income will be
exactly the same and C T (p) = L X (p).
Figure 1. Lorenz Curve of Pre-Tax Income and Post-Tax Income and Concentration Curve of
Tax
In sum, incomes are less unequal after a tax than before the tax if and only if the tax is
distributed more unequally than the income to which it applies. Incomes are more unequal after
a tax than before the tax if and only if the tax is distributed more equally than the income to
which it applies. A proportional tax will have the same distribution as the pre-tax income and
leave the distribution of income unchanged. A poll tax, which taxes all individuals by the same
absolute amount, will feature a concentration curve coincidental with the diagonal, that is, it
will be very unequalizing. 6
6 Although not impossible in principle, taxes in absolute terms (that is, per capita) rarely decline with income in
the real world. If such a tax were to exist, its concentration curve would lie above the diagonal and be extremely
unequalizing.
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