On the Measurement of Horizontal Inequity

December 1, 1995

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Format: Chicago

Peter J. Lambert On the Measurement of Horizontal Inequity, (USA: International Monetary Fund, 1995) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper makes a new attack on the old problem of measuring horizontal inequity in the income tax. Local measures of inequality of posttax income among pretax equals are proposed, which reflect alternative value judgments about the nature and magnitude of an inequity. These measures are aggregated into global indices. The welfare gain from eliminating horizontal inequity revenue-neutrally, and the revenue gain from eliminating it welfare-neutrally, in each case preserving the vertical performance of the tax, are captured by these indices. Difficulties of implementation arising from the “identification problem” are discussed. A variation in the methodology validates banding the income data to create “close equals” groups. Simulations show that the banding procedure works well. A range of potentially fruitful applications is discussed.

Subject: Income distribution, Income inequality, Income tax systems, National accounts, Personal income, Tax equity, Tax policy, Taxes

Keywords: Formula offer justice, Gini coefficient, Global, HI characteristic, HI index, Horizontal equity, Income distribution, Income inequality, Income tax performance, Income tax systems, Personal income, Posttax income, Tax equity, Tax system, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1995/135
Stock No:

WPIEA1351995
ISBN:

9781451855654
ISSN:

1018-5941

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