Redistribution, horizontal inequity, and reranking: Direct taxation in the UK, 1977–2020

Nicolas Hérault () and Stephen Jenkins
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Nicolas Hérault: University of Bordeaux and University of Melbourne
Authors registered in the RePEc Author Service: Nicolas Hérault

No 660, Working Papers from ECINEQ, Society for the Study of Economic Inequality

Abstract: We decompose the redistributive effect of direct taxes into vertical, horizontal, and reranking components applying the methods of Urban and Lambert (Public Finance Review, 2008). Inthe first such application to the UK, and using yearly data covering 1977–2020, we find thatredistributive effect increased over the period. However, there is no clear trend in horizontalinequity and this component forms a very small fraction of total redistributive effect bycomparison with reranking and especially vertical components. It is also the verticalcomponent that best tracks trends in redistributive effect. We give specific attention to thechoice of the bandwidth used to define ‘close equals’ in terms of pre-tax income. We alsoshow that implausible estimates of the horizontal inequity component arise for some yearsregardless of bandwidth used.

Keywords: Redistributive effect; redistribution; horizontal inequity; reranking; Urban-Lambert decomposition; income tax (search for similar items in EconPapers)
JEL-codes: D31 H24 H50 I38 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2023-11
New Economics Papers: this item is included in nep-eec and nep-pub
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