Elasticity determinants of inequality-reducing income taxation

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• dc.contributor.author Carbonell-Nicolau, Oriol
• dc.contributor.author Llavador, Humberto
• dc.date.accessioned 2021-09-14T11:10:51Z
• dc.date.issued 2021
• dc.description Includes supplementary material for the online appendix
• dc.description.abstract The link between income inequality and progressive taxation has long been considered a fundamental normative foundation for income tax progressivity. This paper furnishes necessary and sufficient conditions on primitives, in terms of the elasticity of income with respect to ability, under which various subclasses of progressive taxes are inequality reducing. The distributional effects of progressive income taxation are decomposed into two conditions on the wage elasticity of income, the tax rate effect and the subsidy effect, each capturing different aspects of the transition between before-tax and after-tax income distributions. The results confer a degree of useful flexibility to the theory, in that they allow the analyst to expand the universe of consumer preferences by suitably restricting the set of marginal-rate progressive taxes. As an illustration of the results’ practical implications, we provide a precise characterization of the subclass of (progressive) taxes that are inequality reducing for the constant elasticity of substitution (CES) and the quasi-linear utility functions.
• dc.description.sponsorship This paper benefited from valuable comments made by the anonymous referees. Llavador acknowledges financial support from the Spanish Ministry of Economy and Competitiveness through the Severo Ochoa Programme for Centers of Excellence in R&D (SEV-2015-0563), the AEI/FEDER-UE (PGC2018-096370-B-100) and the AEI/FEDER-EU (ECO2017-89240-P).
• dc.format.mimetype application/pdf
• dc.identifier.citation Carbonell-Nicolau O, Llavador H. Elasticity determinants of inequality-reducing income taxation. The Journal of Economic Inequality. 2021 Mar;19(1):163-83. DOI: 10.1007/s10888-020-09461-8
• dc.identifier.doi http://dx.doi.org/10.1007/s10888-020-09461-8
• dc.identifier.issn 1569-1721
• dc.identifier.uri http://hdl.handle.net/10230/48452
• dc.language.iso eng
• dc.publisher Springer
• dc.relation.ispartof Journal of Economic Inequality. 2021 Mar;19(1):163-83
• dc.relation.projectID info:eu-repo/grantAgreement/ES/1PE/SEV-2015-0563
• dc.relation.projectID info:eu-repo/grantAgreement/ES/2PE/PGC2018-096370-B-100
• dc.relation.projectID info:eu-repo/grantAgreement/ES/2PE/ECO2017-89240-P
• dc.rights © Springer The final publication is available at Springer via http://dx.doi.org/10.1007/s10888-020-09461-8.
• dc.rights.accessRights info:eu-repo/semantics/openAccess
• dc.subject.keyword Incentive effects of taxation
• dc.subject.keyword Income inequality
• dc.subject.keyword Progressive taxation
• dc.subject.keyword Subsidy effect
• dc.subject.keyword Tax rate effect
• dc.subject.keyword Wage elasticity of income
• dc.title Elasticity determinants of inequality-reducing income taxation
• dc.type info:eu-repo/semantics/article
• dc.type.version info:eu-repo/semantics/acceptedVersion