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Unequal Inequalities: Do Progressive Taxes Reduce Income Inequality?

Citation

Duncan, Denvil R. & Peter, Klara Sabirianova (2016). Unequal Inequalities: Do Progressive Taxes Reduce Income Inequality?. International Tax and Public Finance, 23(4), 762-783.

Abstract

This paper analyzes the effect of changes in the structural progressivity of national income tax systems on observed and actual income inequality. Using several unique measures of progressivity over the 1981–2005 period for a large panel of countries, we find that progressivity reduces inequality in observed income, but has a significantly smaller impact on actual inequality, approximated by consumption-based Ginis. An empirical comparative analysis shows that the differential effect on observed versus actual inequality is much larger in countries with weaker legal institutions. We also find that structural progressivity has a greater equalizing effect in environments that support pro-poor redistribution. Substantial differences in inequality response to changes in top versus bottom rates are also uncovered.

URL

http://dx.doi.org/10.1007/s10797-016-9412-5

Reference Type

Journal Article

Year Published

2016

Journal Title

International Tax and Public Finance

Author(s)

Duncan, Denvil R.
Peter, Klara Sabirianova