Measuring the Redistributive Capacity of Tax Policies

Abstract

This paper presents a novel technique to measure and compare the redistributive capacity of observed tax (or transfer) policies. The technique is based on income distribution simulations and controls for differences in pre-tax income distributions. It assumes that the only information on the pre-tax distribution available in each country-year is the Gini coefficient and the mean (GDP per capita). We illustrate the technique with an application to the personal income tax, using a dataset of 108 countries over the 2007-2018 period.

Keywords: Income distribution, redistribution, progressivity, personal income tax, novel technique, PIT redistribution, TRANSPLANT-AND-COMPARE method, PIT Progressive, market income Gini Coefficients, Income distribution, Income, Personal income tax, Progressive taxation, Income inequality, Global

JEL Classification: F31, E26, E25, H24, H20