IS AN INEQUALITY-NEUTRAL FLAT TAX REFORM REALLY NEUTRAL?
Juan Prieto Rodríguez,
Juan Gabriel Rodríguez and
Rafael Salas ()
Additional contact information Juan Prieto Rodríguez: Universidad de Oviedo and Instituto de Estudios Fiscales
Juan Gabriel Rodríguez: Universidad Rey Juan Carlos de Madrid and Instituto de Estudios Fiscales
Authors registered in the RePEc Author Service: Juan Gabriel Rodríguez () and
Juan Prieto-Rodriguez ()
. Let us assume a revenue- and inequality-neutral flat tax reform shifting from a graduated-rate tax. Is this reform really neutral in terms of the income distribution? Traditionally, there has been a bias toward the inequality analysis, forgetting other relevant aspects of the income distribution. This kind of reforms implies a set of composite transfers, both progressive and regressive, even though inequality remains unchanged. This paper shows that polarization is a useful tool for characterizing this set of transfers caused by inequality-neutral tax reforms. A simulation exercise illustrates how polarization can be used to discriminate between two inequality-neutral tax alternatives.