A Re-Examination of the Effects of Personal Deductions, Tax Credits, and the Tax Rate Schedule on Income Tax Progressivity and Income Inequality

Posted: 10 Feb 1999

See all articles by James C. Young

James C. Young

Northern Illinois University - Department of Accountancy

Sarah E. Nutter

George Mason University - Department of Accounting

Patrick J. Wilkie

University of Virginia - McIntire School of Commerce

Abstract

We refine and extend Seetharaman (1994) using tax return level Statistics of Income data that represent the population of 1992 federal individual income tax returns. Our result indicate that while the standard deduction, exemptions, and tax rate schedule continue to contribute the most to progressivity, the rate schedule plays a much greater role (and the standard deduction and exemptions a much lesser role) than previously reported. In addition, consistent with Dunbar (1996), we find that tax credits, in particular the earned income credit, have a substantial effect on overall tax progressivity. Although itemized deductions continue to reduce overall progressivity, with housing costs (mortgage interest and real estate taxes) and state and local income tax deductions being the dominant items, our results indicate that their effect on tax progressivity is smaller than indicated in the earlier study. Finally, we find that the effect of the income tax system on income inequality is more pronounced than previously reported, especially when the data are partitioned by filing status.

JEL Classification: K34, H24

Suggested Citation

Young, James C. and Nutter, Sarah E. and Wilkie, Patrick J., A Re-Examination of the Effects of Personal Deductions, Tax Credits, and the Tax Rate Schedule on Income Tax Progressivity and Income Inequality. Journal of American Taxation Association, Vol 21, No 1, Spring 1999. Available at SSRN: https://ssrn.com/abstract=149431

James C. Young (Contact Author)

Northern Illinois University - Department of Accountancy ( email )

College of Business
DeKalb, IL 60115
United States

Sarah E. Nutter

George Mason University - Department of Accounting ( email )

4400 University Drive
School of Management
Fairfax, VA
United States
703-993-1860 (Phone)
703-993-1809 (Fax)

Patrick J. Wilkie

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
1,452
PlumX Metrics