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Identifying tax implicit equivalence scales

Justin Ven (), Nicolas Hérault () and Francisco Azpitarte
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Justin Ven: The University of Melbourne
Francisco Azpitarte: The University of Melbourne

The Journal of Economic Inequality, 2017, vol. 15, issue 3, No 3, 257-275

Abstract: Abstract This paper describes a simple and tractable method for identifying equivalence scales that reflect the value judgements implicit in a tax and transfer system. The approach depends on two identifying assumptions and a functional description for transfer payments that can be estimated using common publicly available data sources. We use this approach to evaluate tax implicit equivalence scales for the tax-transfer systems of 12 European countries that applied in 2012. Cross-country averages for the tax implicit scales generate a surprising set of stylised results: at low incomes, each additional household member increases the tax implicit scale by approximately 0.5, relative to 1.0 for the first adult; at high incomes, the average tax implicit scales describe variation that is remarkably similar to the modified OECD scale. However, substantial cross-country variation underlies these average scales, suggesting important differences in value judgements implicit in the respective tax-transfer systems; differences that can otherwise be difficult to discern when systems are complex and opaque.

Keywords: Equivalence scale; Taxation; Horizontal equity (search for similar items in EconPapers)
Date: 2017
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