Income distribution and tax structure: Empirical test of the Meltzer–Richard hypothesis

“…First, the error term can be correlated with structural progressivity due to reverse causality. The political economy literature has long established a reverse relationship between income inequality and taxes (Meltzer and Richard, 1981;Persson and Tabellini, 2002;Borge and Rattso, 2004). Also, much of the empirical work that examines the effect of income inequality on economic growth argues that inequality affects growth through its effect on taxes and redistribution, (Perotti, 1992;Persson and Tabellini, 2002;Barro, 2000;Milanovic, 2000).…”

Section: Identification Issuesmentioning

confidence: 99%

Unequal inequalities: Do progressive taxes reduce income inequality?

Duncan

Peter

2016

Int Tax Public Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu This paper analyzes the effect of changes in structural progressivity of national income tax systems on observed and actual income inequality. Using several unique measures of progressivity over the 1981-2005 period for a large panel of countries, we find that progressivity reduces inequality in observed income, but has a significantly smaller impact on actual inequality, approximated by consumption-based GINIs. We show empirically that the differential effect on observed vs. actual inequality is much larger in countries with weaker legal institutions. Substantial differences in inequality response to changes in top vs. bottom rates are also uncovered. The paper discusses implications of these results for flat tax policies. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S JEL Classification:H2, I3, J3, O1, O2

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“…Compulsory schooling accounts for, on average, about 29% of their total expenditures. 6 Municipal activities are financed by a local income tax, a "poll tax" in terms of housing-related utility charges, and property taxes, as well as redistributive transfers from the central government (see Borge and Rattsø, 2004). In addition to the local income tax with a capped rate, municipalities are allowed to impose a property tax, which accounts for a maximum of 0.7% of their tax base.…”

Section: Data and Institutional Features School Districtsmentioning

confidence: 99%

Pennies from Heaven: Using Exogenous Tax Variation to Identify Effects of School Resources on Pupil Achievement

2007

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Abstract:Despite important policy implications associated with the allocation of education resources, evidence on the effectiveness of school inputs remains inconclusive. In part, this is due to endogenous allocation; families sort themselves non-randomly into school districts and school districts allocate money based in order to compensate (or reinforce) differences in child abilities, which leaves estimates of school input effects likely to be biased. Using variation in education expenditures induced by the location of natural resources in Norway, we examine the effect of school resources on pupil outcomes. We find that higher school expenditures, triggered by higher revenues from local taxes on hydropower plants, have a significantly positive effect on pupil performance at age 16. The IV estimates contrast with the standard cross-sectional estimates that reveal no effects of extra resources.

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Income distribution and tax structure: Empirical test of the Meltzer–Richard hypothesis

Cited by 93 publications

References 31 publications

Direct versus Indirect Taxation: Trends, Theory, and Economic Significance

Direct versus Indirect Taxation: Trends, Theory, and Economic Significance

Unequal inequalities: Do progressive taxes reduce income inequality?

Pennies from Heaven: Using Exogenous Tax Variation to Identify Effects of School Resources on Pupil Achievement

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