Measuring the Redistributive Capacity of Tax Policies

IMF Working Papers, October 22, 2021

Source details

Presents a novel technique to measure and compare the redistributive capacity of observed tax (or transfer) policies.
Technique is based on income distribution simulations and controls for differences in pre-tax income distributions.
Assumes that the only information on the pre-tax distribution available in each country-year is the Gini coefficient and the mean (GDP per capita).
Illustrated with an application to the personal income tax, using a dataset of 108 countries over the 2007-2018 period.
Notes: "IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management."

Core approach: income distribution simulations that control for differences in pre-tax distributions.
Information requirement per country-year: Gini coefficient and mean (GDP per capita).
Emphasizes comparability of redistributive capacity across country-years despite different pre-tax distributions.
Associated term/technique referenced: TRANSPLANT-AND-COMPARE method.

Subjects: Income, Income distribution, Income inequality, National accounts, Personal income tax, Progressive taxation, Tax policy, Taxes.
Keywords: Global, Income, Income distribution, Income distribution, Income inequality, market income Gini Coefficients, novel technique, personal income tax, Personal income tax, PIT Progressive, PIT redistribution, Progressive taxation, progressivity, redistribution, TRANSPLANT-AND-COMPARE method.