Assessing Income Tax Perturbations

31 Pages Posted: 21 Feb 2019

See all articles by Vidar Christiansen

Vidar Christiansen

University of Oslo - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Zhiyang Jia

Statistics Norway

Thor Olav Thoresen

Statistics Norway; University of Oslo

Date Written: 2018

Abstract

Taking a piecemeal tax reform approach to tax analysis in the spirit of Feldstein (1976), we establish a framework for assessing perturbations of the income tax schedule. It decomposes a reform into a change in tax level and a structural reform part. Focussing on the latter, the analysis singles out four effects: A social efficiency effect measured as the change in tax revenue due to behavioural changes, distributional impact due to mechanical effects, total distributional effects, and overall welfare effects conditional on inequality aversion. When applying our approach to changes in the piecewise linear income tax in Norway during 2016-2018, we identify the cut-off value for the inequality aversion for which the reform is just welfare preserving. For lower inequality aversion the decision makers have accepted a reform which enhances social efficiency at the expense of redistribution in favour of the better-off households.

Keywords: income tax, tax reform, tax perturbation

JEL Classification: H210

Suggested Citation

Christiansen, Vidar and Jia, Zhiyang and Thoresen, Thor Olav, Assessing Income Tax Perturbations (2018). CESifo Working Paper No. 7428, Available at SSRN: https://ssrn.com/abstract=3338782

Vidar Christiansen (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
011-47-22-855121 (Phone)
011-47-22-855035 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Zhiyang Jia

Statistics Norway ( email )

N-0033 Oslo
Norway

Thor Olav Thoresen

Statistics Norway ( email )

N-0033 Oslo
Norway

University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, N-0317
Norway

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