Sankhya: The Indian Journal of Statistics

2002, Volume 64, Series B, Pt. 1, 90--100

THE REDISTRIBUTIVE EFFECT OF TAX POLICIES

By

JOHAN FELLMAN, Swedish School of Economics & Business Administration, Helsinki, Finland

SUMMARY. We consider a class of tax policies, which are constrained to yield the same amount in tax revenue. Every policy generates a transformed income distribution, which is first order stochastic dominated by the initial pre-tax income distribution, and a transformed Lorenz curve and transformed Gini and welfare indices. The extremes of the transformed Lorenz curves and the ranges of the transformed indices indicate the broadness of the class. Every index within the obtained ranges and every point within the closed region, limited by the extreme Lorenz curves, are attainable by a member of the class. We present the necessary and sufficient conditions that a given Lorenz curve within that closed region is attainable by a tax policy belonging to the given clas.

AMS (2000) subject classification. Primary 60E10, 60E15; secondary 62P20.

Key words and phrases. Gini index, income inequality, Lorenz curves, stochastic dominance.

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