Inequality reducing properties of progressive income tax schedules The case of endogenous income Oriol Carbonell - Nicolau, Humberto Llavador
By: Carbonell Nicolau, Oriol
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Contributor(s): Llavador, Humberto.
Material type: 
ArticlePublisher: 2018Subject(s): IMPUESTOS | PROGRESIVIDAD | DESIGUALDAD | MODELOS ECONOMETRICOSOnline resources: Click here to access online
In:
Theoretical economics : journal of the Econometric Society v. 13, n. 1, January 2018, p. 39-60 Summary: The case for progressive income taxation is often based on the classic result of Jakobsson (1976) and Fellman (1976), according to which progressive and only progressive income taxes—in the sense of increasing average tax rates on
income—ensure a reduction in income inequality. This result has been criticized on the grounds that it ignores the possible disincentive effect of taxation on work effort, and the resolution of this critique has been a longstanding problem in
public finance. This paper provides a normative rationale for progressivity that takes into account the effect of an income tax on labor supply. It shows that a tax schedule is inequality reducing only if it is progressive—in the sense of increasing
marginal tax rates on income—and identifies a necessary and sufficient condition on primitives under which progressive and only progressive taxes are inequality reducing.
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Resumen.
The case for progressive income taxation is often based on the classic result of Jakobsson (1976) and Fellman (1976), according to which progressive and only progressive income taxes—in the sense of increasing average tax rates on
income—ensure a reduction in income inequality. This result has been criticized on the grounds that it ignores the possible disincentive effect of taxation on work effort, and the resolution of this critique has been a longstanding problem in
public finance. This paper provides a normative rationale for progressivity that takes into account the effect of an income tax on labor supply. It shows that a tax schedule is inequality reducing only if it is progressive—in the sense of increasing
marginal tax rates on income—and identifies a necessary and sufficient condition on primitives under which progressive and only progressive taxes are inequality reducing.
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