Measurement of redistributive effect of tax rates from a longitudinal perspective: an application of the fixed taxable income approach

ABSTRACT

The primary objective of this article is to explore how the redistributive effects of tax rate change when using the fixed taxable income approach – where tax rates for each year in a period are applied to taxable income for a base year to calculate rate effects – instead of using an existing procedure to compute the rate effects. Standard rate effects are found to differ considerably from those calculated using the fixed taxable income approach in terms of both level and longitudinal trend.

KEYWORDS:

• Fixed income approach
• personal income tax
• rate effect
• redistributive effect

JEL CLASSIFICATION:

• D63
• H24

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ The re-ranking effect is expressed as

where , a re-ranking effect for , and the upper bars stand for a re-ranking effect evaluated by the Gini coefficient at a base year (). and denote the Gini coefficient concentration coefficient for , respectively. is pre-tax income; denotes tax deductions; is tax liabilities.

² For more details about the calculation of income and taxable income, see Miyazaki and Kitamura. (2015).

Additional information

Funding

This work was supported by the Joint Usage and Research Center, Institute of Economic Research, Hitotsubashi University.