On the Measurement of Horizontal Inequity

34 Pages Posted: 15 Feb 2006

See all articles by Peter J. Lambert

Peter J. Lambert

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

Date Written: December 1995

Abstract

This paper makes a new attack on the old problem of measuring horizontal inequity in the income tax. Local measures of inequality of posttax income among pretax equals are proposed, which reflect alternative value judgments about the nature and magnitude of an inequity. These measures are aggregated into global indices. The welfare gain from eliminating horizontal inequity revenue-neutrally, and the revenue gain from eliminating it welfare-neutrally, in each case preserving the vertical performance of the tax, are captured by these indices. Difficulties of implementation arising from the "identification problem" are discussed. A variation in the methodology validates banding the income data to create "close equals" groups. Simulations show that the banding procedure works well. A range of potentially fruitful applications is discussed.

JEL Classification: D63, H24

Suggested Citation

Lambert, Peter J., On the Measurement of Horizontal Inequity (December 1995). IMF Working Paper No. 95/135, Available at SSRN: https://ssrn.com/abstract=883281

Peter J. Lambert (Contact Author)

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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

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