Nontaxable income and necessary consumption: the Rousseau’s paradox of fiscal egalitarianism

Faíña, Andres / A., Jesus Lopez-Rodriguez and Varela, Laura / L.

MPRA Paper from University Library of Munich, Germany

Abstract: The traditional concept of a strict minimum of necessary consumption and nontaxable income equal for all taxpayers embedded in most current income-tax systems is the result of a paradox of fiscal egalitarianism. The paper shows that substituting the traditional notion of a strict minimum of nontaxable income (Surplus Income Tax Method) for a scheme of growing personal allowances to meet the amounts of necessary consumption required by the different living standards of the taxpayers (Discretionary Income Tax Method) generates an income-tax scheme more progressive than the traditional one. In the paper we also show that this alternative proposal for nontaxable incomes generates an after-tax income distribution less unequal (Lorenz dominance) and superior in terms of social welfare (Atkinson, 1970).

Keywords: nontaxable income; necessary consumption; progressivity; tax burden; income distribution (search for similar items in EconPapers)
JEL-codes: D31 D63 H24 (search for similar items in EconPapers)
Date: 2011-08-11
New Economics Papers: this item is included in nep-acc
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https://mpra.ub.uni-muenchen.de/32909/1/MPRA_paper_32909.pdf revised version (application/pdf)

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