IMF Working Papers

An Application of Distribution-Neutral Fiscal Policy

By Sanjeev Gupta, Sugata Marjit, Sandip Sarkar

January 24, 2018

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Sanjeev Gupta, Sugata Marjit, and Sandip Sarkar. An Application of Distribution-Neutral Fiscal Policy, (USA: International Monetary Fund, 2018) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Distribution neutral fiscal policy refers to a structure of taxes and transfers that keep the income distribution unchanged even after positive or negative shocks to an economy. This is referred to as a Strong Pareto Superior (SPS) allocation which improves the standard Pareto criterion by keeping the degree of inequality, but not the absolute level of income intact. We apply this methodology to India to compute SPS tax rates and determine their proximity to actual tax rates. Limited available data on income and expenditure shows that the official policies so far are close to desired benchmark level. Our methodological contribution will be enriched further with more detailed income tax and transfer data.

Subject: Estate tax, Fiscal policy, Income distribution, Income inequality, National accounts, Personal income, Taxes

Keywords: Compensation mechanism, Estate tax, Income distribution, Income distribution, Income inequality, Income quantile, Inequality, Inequality measure, Lorenz curve, Personal income, Salary income, SPS allocation, Strong Pareto Superiority, WP

Publication Details

  • Pages:

    21

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2018/012

  • Stock No:

    WPIEA2018012

  • ISBN:

    9781484338568

  • ISSN:

    1018-5941

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