Redistribution, horizontal inequity, and reranking: direct taxation in the UK, 1977–2020

Herault, Nicolas and Jenkins, Stephen P. ORCID: 0000-0002-8305-9774 (2023) Redistribution, horizontal inequity, and reranking: direct taxation in the UK, 1977–2020. III Working Papers (125). International Inequalities Institute, London School of Economics and Political Science, London, UK.

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Abstract

We decompose the redistributive effect of direct taxes into vertical, horizontal, and reranking components applying the methods of Urban and Lambert (Public Finance Review, 2008). In the first such application to the UK, and using yearly data covering 1977–2020, we find that redistributive effect increased over the period. However, there is no clear trend in horizontal inequity and this component forms a very small fraction of total redistributive effect by comparison with reranking and especially vertical components. It is also the vertical component that best tracks trends in redistributive effect. We give specific attention to the choice of the bandwidth used to define ‘close equals’ in terms of pre-tax income. We also show that implausible estimates of the horizontal inequity component arise for some years regardless of bandwidth used.

Item Type:	Monograph (Working Paper)
Official URL:	https://www.lse.ac.uk/International-Inequalities/P...
Additional Information:	© 2023 The Author(s)
Divisions:	Social Policy
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HJ Public Finance
JEL classification:	D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies H - Public Economics > H5 - National Government Expenditures and Related Policies > H50 - General I - Health, Education, and Welfare > I3 - Welfare and Poverty > I38 - Government Policy; Provision and Effects of Welfare Programs
Date Deposited:	06 Dec 2023 10:45
Last Modified:	01 Apr 2024 08:00
URI:	http://eprints.lse.ac.uk/id/eprint/120996

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