Skewness, Tax Progression, and Demand for Redistribution: Evidence from the UK

Abstract

We introduce a skewness-based approach to measure tax progression and demand for redistribution. We provide a political economy foundation for a novel measure of skewness by expressing key properties of the classical model of voting over income redistribution (Meltzer and Richard, 1981) and the Prospect Of Upward Mobility (POUM) mechanism (Benabou and Ok, 2001), as well as the conventional notion of a progressive tax, directly in terms of skewness, defined using quantile ratios relative to the median of the income distribution.

In an empirical analysis of 1979 - 2013 UK income distributions, we find that skewness has increased over time, with the rich moving further away from the median. While the magnitude of the increase has remained small enough that the observed redistribution (or lack thereof) could be consistent with the POUM hypothesis, more recent periods show an increase in tax progression. Comparisons with standard measures of income inequality indicate that the quantile skewness picks up a different dimension of inequality, not captured by the existing measures.

Keywords: Quantile Skewness, Inequality, Voting over Redistribution, Tax Progression

JEL Classification: D31, D63, H20, P16