Classical Horizontal Inequity and Reranking: an Integrated Approach

Jean-Yves Duclos (), Vincent Jalbert and Araar Abdelkrim ()

Cahiers de recherche from Université Laval - Département d'économique

Abstract:

The last 20 years have seen a significant evolution in the literature on horizontal inequity (HI) and have led to two major and "rival" methodological strands, namely, classical HI and reranking. We propose in this paper a class of ethically flexible tools that integrate these two strands. This is achieved using a measure of inequality that merges the well-known Gini coefficient and Atkinson index, and that allows a decomposition of the total redistributive effect of taxes and transfers into a vertical equity effect, a loss of redistribution due to classical HI, and a loss of redistribution due to reranking. An inequality-change approach and a money-metric cost-of-inequality approach are developed. The latter approach makes aggregate classical HI decomposable across socio-economic groups and percentiles. As in recent work, equals are identified through a nonparametric estimation of the joint density of gross and net incomes. An illustration using Canadian data from 1981 to 1994 shows a substantial, and increasing, robust erosion of redistribution attributable both to classical HI and to reranking, but does not reveal whether reranking is more or less important than classical HI, since this requires a judgement that is fundamentally normative.

Keywords: Horizontal inequity; Reranking; Tax equity; Inequality; Canadian tax and transfer system (search for similar items in EconPapers)
JEL-codes: C14 D31 D63 H23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2000
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Related works:
Working Paper: Classical Horizontal Inequity and Reranking: an Integrated Approach (2001)
Working Paper: Classical Horizontal Inequity and Reranking: an Integrated Approach (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:lvl:laeccr:0002

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