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IS AN INEQUALITY-NEUTRAL FLAT TAX REFORM REALLY NEUTRAL?

Juan Prieto Rodríguez, Juan Gabriel Rodríguez and Rafael Salas ()
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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 ()

No 29-04 Classification-JEL : D39, D63, H30., Working Papers from Instituto de Estudios Fiscales

Abstract: . 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.

Keywords: polarization; inequality; flat tax. (search for similar items in EconPapers)
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