CLASSICAL HORIZONTAL INEQUITY AND RERANKING: AN INTEGRATING APPROACH

Jean-Yves Duclos, Vincent Jalbert and Abdelkrim Araar

A chapter in Fiscal Policy, Inequality and Welfare, 2003, pp 65-100 from Emerald Group Publishing Limited

Abstract: The last 20 years have seen a significant evolution in the literature on horizontal inequity (HI) and have generated 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 indices, and that allows a decomposition of the total redistributive effect of taxes and transfers into a vertical equity effect and a loss of redistribution due to either classical HI or reranking. An inequality-change approach and a money-metric cost-of-inequality approach are developed. The latter approach makes aggregate classical HI decomposable across groups. As in recent work, equals are identified through a non-parametric 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 which of reranking or classical HI is more important since this requires a judgement that is fundamentally normative in nature.

Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:eme:reinzz:s1049-2585(03)10004-x

DOI: 10.1016/S1049-2585(03)10004-X

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