On the Aronson-Johnson-Lambert Decomposition of the Redistributive Effect

Abstract

Recently van De Van, Creedy and Lambert (2001) and Lambert and Urban (2005) have reconsidered the original Aronson, Johnson and Lambert (1994) decomposition of the redistributive effect in order to properly evaluate personal income tax reforms, when sequential income groups do not concern exact equals. Lambert and Urban (2005) decompose the Atkinson-Plotnick-Kakwani index into three terms. We utilize this decomposition in choosing the optimal bandwidth set and suggest to consider not only the highest vertical contribution to the redistributive effect, but also the horizontal inequity due to the reranking of the mean post-tax income among groups. Findings are applied to Italian data with respect to both individual nominal incomes and equivalent household incomes. JEL Classification Numbers: H23; H24.