Vertical redistribution and horizontal inequity

Peter Lambert, and Xavi Ramos ()
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Peter Lambert,: Institute for Fiscal Studies

No W95/01, IFS Working Papers from Institute for Fiscal Studies

Abstract: Inequality of post-tax income among pre-tax equals is evaluated and aggregated to form a global index of horizontal inequity in the income tax. The vertical action of the tax is captured by its inequality effect on average between groups of pre-tax equals. Putting the two together, horizontal inequity measures loss of vertical performance. The identification problem, which has previously been thought insuperable, is addressed by a procedure validating the banding of income units into 'close equals' groups. The horizontal and vertical effects of a major Spanish income tax reform are evaluated. Lines for future investigation are suggested.

Date: 1995-01-01
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