The Inequality Effects of a Dual Income Tax System

Lambert Peter J. () and Thor Thoresen
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Lambert Peter J.: University of Oregon and Statistics Norway

The B.E. Journal of Economic Analysis & Policy, 2012, vol. 12, issue 1, 17

Abstract: A dual income tax system, combining progressive taxation of labor income with proportional taxation of income from capital, may or may not be unambiguously inequality reducing. Examples show that the degree of correlation between the distributions of wage and capital income, the degree of tax rate differentiation in the DIT, and reranking of tax-payers can be expected to complicate a clear-cut analysis. We trace out what can be said definitively, obtaining sufficient conditions for unambiguous inequality reduction in certain cases, and more generally identifying the nature of the implicit redistribution between labor and capital income components which is sufficient to ensure overall inequality reduction.

Keywords: personal income tax; dual income tax; redistributive effect (search for similar items in EconPapers)
Date: 2012
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Working Paper: The inequality effects of a dual income tax system (2011)
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DOI: 10.1515/1935-1682.3271

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