Dalton-Improving Indirect Tax Reform

Joram Mayshar and Shlomo Yitzhaki

American Economic Review, 1995, vol. 85, issue 4, 793-807

Abstract: A tax reform is 'Dalton-improving' if it improves social welfare for all possible social-welfare functions that conform to Hugh Dalton's principle of transfers. According to this principle, there exists a prior social ranking of households and a transfer is approved if it it distributes from high-ranking ('rich') to low-ranking ('poor') households, without altering the ranking itself. In this paper, the authors develop a procedure for identifying marginal Dalton-improving reforms in the context of indirect taxation. The methodology is illustrated using data on excise taxes in the United Kingdom. Copyright 1995 by American Economic Association.

Date: 1995
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