Identifying Tax Implicit Equivalence Scales

15 Pages Posted: 8 Mar 2014

See all articles by Justin van de Ven

Justin van de Ven

National Institute of Economic and Social Research (NIESR); Melbourne Institute of Applied Economic and Social Research

Nicolas Herault

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Francisco Azpitarte

Melbourne Institute of Applied Economic and Social Research & Brotherhood of St Laurence

Date Written: March 2014

Abstract

This paper describes a simple and tractable method for identifying equivalence scales that reflect the value judgements implicit in a tax and benefits system. The approach depends upon two assumptions that are standard in the literature concerned with inequality and tax progressivity, in addition to a functional description for transfer payments that can be estimated using common micro-data sources. We use this approach to evaluate tax implicit equivalence scales for the UK transfer system that applied in April 2009. The tax implicit scales that we identify for the UK vary positively with tax unit size and are decreasing in gross earnings, reflecting recent econometric estimates based on consumption data. We conclude by discussing a range of potential applications for the proposed tax implicit scales.

Keywords: Equivalence scale, taxation, base dependence

JEL Classification: D31, H23, I38

Suggested Citation

van de Ven, Justin and Herault, Nicolas and Azpitarte, Francisco, Identifying Tax Implicit Equivalence Scales (March 2014). Melbourne Institute Working Paper No. 3/14, Available at SSRN: https://ssrn.com/abstract=2405730 or http://dx.doi.org/10.2139/ssrn.2405730

Justin Van de Ven (Contact Author)

National Institute of Economic and Social Research (NIESR) ( email )

2 Dean Trench Street
Smith Square
London SW1P 3HE
United Kingdom

Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia
61390355028 (Phone)

Nicolas Herault

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

HOME PAGE: http://www.findanexpert.unimelb.edu.au/researcher/person125238.html

Francisco Azpitarte

Melbourne Institute of Applied Economic and Social Research & Brotherhood of St Laurence ( email )

Level 5, FBE Building, 111 Barry Street
111 Barry Street, University of Melbourne
Melbourne, 3010
+61 3 9035 3414 (Phone)
+61 3 8344 2111 (Fax)

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