The distributional effects of taxes and transfers under alternative income concepts: the importance of three ‘I’s

Francesco Figari () and Alari Paulus

No EM15/13, EUROMOD Working Papers from EUROMOD at the Institute for Social and Economic Research

Abstract: This paper investigates how the distribution of income changes when the standard definition of disposable income is replaced by an extended income concept which takes into account the three ‘I’s: indirect taxes, imputed rent, and in-kind benefits. Second, it assesses how sensitive the distributional effects of each tax-benefit instrument are to the choice of income concept. The analysis covers three European countries (Belgium, Greece and the UK) characterised by substantially different tax-benefit systems, giving a stronger base for generalising the results. The main findings are that the overall redistributive effect of the tax-benefit systems depends heavily on the income concept considered and the differences across countries are smaller when considering the extended income distribution. Moreover, the common use of a narrower income concept, such as the disposable income, can lead to the overestimation of the redistributive effect of the cash tax-benefit instruments (in relative terms), the extent of this varying across countries, due to the size and distribution of three ‘I’s and the adoption of the needs-adjusted equivalence scale.

Date: 2013-08-22
New Economics Papers: this item is included in nep-acc, nep-eur, nep-pbe and nep-pub
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Citations: View citations in EconPapers (1)

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