The Inconsistency between Measurement and Policy Instruments in Family Income Taxation

Abstract

The aim of this paper is to point out an inconsistency between the way income tax progressivity is measured and the policy instruments used by the income tax authorities. This inconsistency leads to violation of Feldstein's principle of horizontal equity and causes unintentional reranking among families of different sizes. The paper provides a methodology for measuring the magnitude of the unintentional reranking in terms of foregone redistribution.