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Redistributive Effects In A Dual Income Tax System

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Executive Summary

Equity issues of the dual income tax have been left aside in the field of economics. Since a dual income tax needs different modeling than a comprehensive one this paper offers firstly a quantitative framework to measure redistributive effects; it turns out that this involves both direct and indirect effects. The effects of horizontal inequity and re-ranking are also incorporated into the decomposition analysis. The approach is applicable using available income and tax statistics. Secondly, partial effects of changes in tax parameters are presented; they are channeled through the direct and indirect effects; and are not always straightforward.

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