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Decomposing the Redistributive Effect of Taxation to Reveal Axiom Violations

Author

Listed:
  • Simone Pellegrino

    (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)

  • Achille Vernizzi

    (Department of Economics, Management and Quantitative Methods, University of Milan, Italy)

Abstract
In this paper we propose two alternative strategies in order to decompose the redistributive effect of the personal income tax in the portion due to deductions, marginal tax rates and tax credits. The first one, inspired by the analysis by Lambert (2001), Pfahler (1990) and Onrubia et al. (2014), is a stepwise or "ex ante" decomposition, whilst the second strategy, inspired by the works by Podder (1993a,b) and Podder and Chatterjee (2002), is an overall and simultaneous or "ex post" decomposition. The value added of our approaches is twofold: they are very simple and intuitive, and, moreover, both of them allow to quantify the Axiom violations, as proposed by Kakwani and Lambert (1998), for each part in which the redistributive effect can be decomposed. We take Italy as a case study.

Suggested Citation

  • Simone Pellegrino & Achille Vernizzi, 2018. "Decomposing the Redistributive Effect of Taxation to Reveal Axiom Violations," Working papers 049, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    • Handle: RePEc:tur:wpapnw:049
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    File URL: http://www.bemservizi.unito.it/repec/tur/wpapnw/m49.pdf
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    References listed on IDEAS

    as
    1. Simone Pellegrino & Guido Perboli & Giovanni Squillero, 2019. "Balancing the equity-efficiency trade-off in personal income taxation: an evolutionary approach," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(1), pages 37-64, April.
    2. Adam Wagstaff & Eddy van Doorslaer, 2001. "What Makes the Personal Income Tax Progressive? A Comparative Analysis for Fifteen OECD Countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(3), pages 299-316, May.
    3. Morini, Matteo & Pellegrino, Simone, 2018. "Personal income tax reforms: A genetic algorithm approach," European Journal of Operational Research, Elsevier, vol. 264(3), pages 994-1004.
    4. Podder, Nripesh & Chatterjee, Srikanta, 2002. "Sharing the national cake in post reform New Zealand: income inequality trends in terms of income sources," Journal of Public Economics, Elsevier, vol. 86(1), pages 1-27, October.
    5. Maria Giovanna Monti & Simone Pellegrino & Achille Vernizzi, 2015. "On Measuring Inequity in Taxation Among Groups of Income Units," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(1), pages 43-58, March.
    6. Kakwani, Nanak & Lambert, Peter J., 1998. "On measuring inequity in taxation: a new approach," European Journal of Political Economy, Elsevier, vol. 14(2), pages 369-380, May.
    7. Plotnick, Robert, 1981. "A Measure of Horizontal Inequity," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 283-288, May.
    8. Achille Vernizzi & Edyta Mazurek, 2013. "Some Considerations on Measuring the Progressive Principle Violations and the Potential Equity in Income Tax Systems," Statistics in Transition new series, Główny Urząd Statystyczny (Polska), vol. 14(3), pages 467-486, September.
    9. Fernando Di Nicola & Giorgio Mongelli & Simone Pellegrino, 2015. "The static microsimulation model of the Italian Department of Finance: Structure and first results regarding income and housing taxation," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2015(2), pages 125-157.
    10. Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
    11. Jenkins, Stephen, 1988. "Calculating Income Distribution Indices From Micro-Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 41(1), pages 139-142, March.
    12. Nripesh Podder, 1993. "The Disaggregation Of The Gin1 Coefficient By Factor Components And Its Applications To Australia," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 39(1), pages 51-61, March.
    13. Gian Paolo Barbetta & Simone Pellegrino & Gilberto Turati, 2018. "What Explains the Redistribution Achieved by the Italian Personal Income Tax? Evidence from Administrative Data," Public Finance Review, , vol. 46(1), pages 7-28, January.
    14. Simone Pellegrino & Achille Vernizzi, 2013. "On measuring violations of the progressive principle in income tax systems," Empirical Economics, Springer, vol. 45(1), pages 239-245, August.
    15. Ivica Urban, 2006. "Progressivity of personal income tax in Croatia: decomposition of tax base and rate effects," Financial Theory and Practice, Institute of Public Finance, vol. 30(3), pages 207-231.
    16. Jorge Onrubia & Fidel Picos-Sánchez & María Carmen Rodado, 2014. "Rethinking the Pfähler–Lambert decomposition to analyse real-world personal income taxes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(4), pages 796-812, August.
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    Cited by:

    1. Paolo Caro, 2020. "Decomposing Personal Income Tax Redistribution with Application to Italy," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(1), pages 113-129, March.

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    More about this item

    Keywords

    Personal income tax; Microsimulation models; Reynolds-Smolensky index; Pfahler decomposition; Kakwani and Lambert decomposition.;
    All these keywords.

    JEL classification:

    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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