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International Tax and Public Finance

, Volume 23, Issue 4, pp 762–783 | Cite as

Unequal inequalities: Do progressive taxes reduce income inequality?

  • Denvil DuncanEmail author
  • Klara Sabirianova Peter
Policy Watch

Abstract

This paper analyzes the effect of changes in the structural progressivity of national income tax systems on observed and actual income inequality. Using several unique measures of progressivity over the 1981–2005 period for a large panel of countries, we find that progressivity reduces inequality in observed income, but has a significantly smaller impact on actual inequality, approximated by consumption-based Ginis. An empirical comparative analysis shows that the differential effect on observed versus actual inequality is much larger in countries with weaker legal institutions. We also find that structural progressivity has a greater equalizing effect in environments that support pro-poor redistribution. Substantial differences in inequality response to changes in top versus bottom rates are also uncovered.

Keywords

Income inequality Gini Personal income tax Structural progressivity Tax evasion 

JEL Classification

H2 I3 J3 O1 O2 

Notes

Acknowledgments

We would like to thank participants at the 71st Annual Congress of the International Institute of Public Finance, and two anonymous referees for their feedback and suggestions.

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.

Supplementary material

10797_2016_9412_MOESM1_ESM.pdf (468 kb)
Supplementary material 1 (pdf 468 KB)

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.School of Public and Environmental AffairsIndiana UniversityBloomingtonUSA
  2. 2.Department of EconomicsUniversity of North Carolina - Chapel HillChapel HillUSA
  3. 3.CEPR, and IZABonnGermany

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