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Inequality Reducing Properties of Progressive Income Tax Schedules: The Case of Endogenous Income

Author

Listed:
  • Oriol Carbonell-Nicolau

    (Rutgers University)

  • Humberto Llavador

    (Universitat Pompeu Fabra)

Abstract

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 ground that it ignores the possible disincentive effect of taxation on work effort, and the resolution of this critique has been a long-standing 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 in- creasing marginal tax rates on income, and identifies a necessary and sufficient condition on primitives under which progressive and only progressive taxes are inequality reducing.

Suggested Citation

  • Oriol Carbonell-Nicolau & Humberto Llavador, 2016. "Inequality Reducing Properties of Progressive Income Tax Schedules: The Case of Endogenous Income," Departmental Working Papers 201603, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:201603
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    References listed on IDEAS

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    Cited by:

    1. Oriol Carbonell-Nicolau & Humberto Llavador, 2021. "Elasticity determinants of inequality-reducing income taxation," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(1), pages 163-183, March.
    2. Michael McAsey & Libin Mou, 2022. "Transformations that minimize the Gini index of a random variable and applications," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(2), pages 483-502, June.
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    4. Oriol Carbonell-Nicolau & Humberto Llavador, 2018. "Further Results on the Inequality Reducing Properties of Income Tax Schedules," Departmental Working Papers 201801, Rutgers University, Department of Economics.

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    More about this item

    Keywords

    progressive taxation; income inequality; incentive effects of taxation;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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