Horizontal inequity under a dual income tax system: principles and measurement

Arbeitspapier

Tax systems with separate taxation of wage and capital income, also called dual income tax systems, have gained relevance through the Mirrlees Review. Obviously, such tax systems are exposed to horizontal equity (HE) failures, or horizontal inequity (HI). HE and HI have a firm grip on assessment of fair tax policies, both from an academic point of view and in general public debate. The dual income tax system of Norway was modified by the tax reform of 2006 precisely because the previous schedule failed to deliver equal tax treatment of equals. This paper discusses the meaning and measurement of HI effects of dual income tax systems, and evaluates the development of HI for Norway over the time period 2000-2008 using micro data. A copula-based identification strategy efficiently establishes a framework for evaluations of HI over time. The dual income tax system and the early announcement of its impending revision during the period under examination created measurement problems which we had to account for by defining a new income concept for the empirical strategy. As expected, we find less HI in Norway after the reform of 2006.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Papers ; No. 647

Classification and Topics

• Classification: Wirtschaft ; Personal Income, Wealth, and Their Distributions ; Equity, Justice, Inequality, and Other Normative Criteria and Measurement ; Fiscal Policies and Behavior of Economic Agents: Household
• Subject: Dual income tax ; Horizontal inequity ; Reranking ; Copula estimation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bø, Erlend E. ; Lambert, Peter J. ; Thoresen, Thor O.
• Event: Veröffentlichung
• (who): Statistics Norway, Research Department
• (where): Oslo
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/192629
• Last update: 10.03.2025, 11:43 AM CET