On the Equivalence between Progressive Taxation and Inequality Reduction
Posted: 2 Jun 2008
Abstract
We establish the precise connections between progressive taxation and inequality reduction, in a setting where the level of tax revenue to be raised is exogenously fixed and tax schemes are balanced. We show that, in contrast with the traditional literature on taxation, the equivalence between inequality reduction and the combination of progressivity and income order preservation does not always hold in this setting. However, we show that, among rules satisfying consistency and, either revenue continuity, or revenue monotonicity, the equivalence remains intact.
Keywords: progressivity, inequality reduction, income order preservation, consistency, revenue monotonicity, taxation
JEL Classification: C70, D63, D70, H20
Suggested Citation: Suggested Citation