Estimates of the Changing Equity Characteristics of the U.S. Income Tax with International Conjectures

Abstract

This article provides empirical estimates of the redistributive impact of U.S. personal income tax over the period [1979][1980][1981][1982][1983][1984][1985][1986][1987][1988][1989][1990]. The estimates are based on tax return data compiled from the Ernst and Young/University of Michigan tax research database. The authors employ the Gini coefficient decomposition methodology of Lambert and Aronson to distinguish between the vertical, horizontal, and reranking effects of the tax. The authors show growing pre-and posttax income inequality for the United States over the study period. But the data also suggest that the amount of horizontal inequity associated with the U.S. personal income tax is relatively low. This article also contains some international comparisons. The redistribution associated with income taxes in the United Kingdom and Spain has been measured with the same methodology the authors employ. These two countries are also characterized by growing pre-and posttax inequality, although the level of inequality is less there than in the United States. A final interesting point of comparison, however, is that the amount of horizontal inequity associated with the tax appears less than either in the United Kingdom or Spain.

On Measuring Inequity in Taxation Among Groups of Income Units

“…As Lambert (, p. 39) notes, income tax is particularly subject to criteria of equity, being the unique tax instrument through which the government directly approaches its citizens. Horizontal and vertical equity are two of the basic commands of social justice that have been applied to income tax, raising a number of issues (Aronson and Lambert, ; Aronson et al ., , ; Wagstaff et al ., ; van de Ven et al ., ; Hyun and Lim, ; Urban and Lambert, , among others).…”

Classical Horizontal Inequity and Reranking: An Integrated Approach

“…These results agree with the Canadian results of Duclos and Lambert (2000) on classical HI as well as with Duclos and Tabi (1999) on reranking in Canada. In contrast, Aronson, Lambert, and Trippeer (1997), using U.S. and British data, observe the opposite effects between 1981. Lambert and Ramos (1997 find a decline for Î and À along with an increase in Ê between 1985 and 1990, for Spain.…”

What works to mitigate and reduce relative (and absolute) inequality? A systematic review

“…One of the tax reforms that has attracted the attention of scholars is the Tax Reform Act of 1986. The US tax system became less progressive, thus contributing to an increase in income inequality (Aronson et al 1999;Berliant and Strauss 1993). Lower tax rates in the highest income bracket increased net wages for higher-income earners, thus creating incentives for agents to increase their labour supply.…”