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Inequality, Bipolarization, and Tax Progressivity

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  • Oriol Carbonell-Nicolau
  • Humberto Llavador

Abstract

The steady rise in income and wealth inequality in the last four decades, together with the evolution of a vanishing middle class, has raised concerns about potentially pernicious effects of these trends on social stability and economic growth. This paper evaluates the possibility of designing tax systems aimed at reducing income inequality and bipolarization. Using two fundamentally different metrics, the relative Lorenz preorder popularized by Atkinson (1970) to measure inequality, and the relative bipolarization preorder put forth in Chakravarty (2009, 2015) to measure bipolarization, we provide a unified foundation of tax progressivity whereby, roughly, taxes are progressive if and only if they are inequality reducing if and only if they are bipolarization reducing. The details of this characterization vary depending on whether or not labor supply is responsive to taxation.

Suggested Citation

  • Oriol Carbonell-Nicolau & Humberto Llavador, 2019. "Inequality, Bipolarization, and Tax Progressivity," Working Papers 1071, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1071
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    Cited by:

    1. Chakravarty, Satya R. & Sarkar, Palash, 2022. "A synthesis of local and effective tax progressivity measurement," MPRA Paper 115180, University Library of Munich, Germany.
    2. Satya R. Chakravarty & Palash Sarkar, 2022. "Inequality minimising subsidy and taxation," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 10(1), pages 53-67, May.

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    More about this item

    Keywords

    shrinking middle class; Progressive Taxation; income bipolarization; Income inequality; incentive effects of taxation;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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