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Horizontal Inequity: Some New Perspectives

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  • Peter Lambert

Abstract

This paper reviews and synthesizes some new approaches to measuring the horizontal inequity (HI) in an income tax or tax and benefit system. Both 'classical' and 'no reranking' (NR) strands of new enquiry are pursued. The new work on classical HI rests upon the choice of a smooth 'averaged' relationship between pre-and post-tax living standards, which is HI-free. Departures from this, among pre-tax equals, count as local horizontal inequities, and global HI indices emerge as negative components in familiar tax progressivity indices. A different line of analysis conceptualizes HI as lack of perfect association between pre-tax and post-tax living standards, and imposes 'purity' axioms which render HI independent of the metric for living standards and the tax system's vertical performance. A dominance test for HI comparisons results, with a strong affinity to previous work in the NR tradition. The new methodologies are illustrated and compared using Canadian tax and benefit data for 1981 and 1990, and directions for future work are discussed.

Suggested Citation

  • Peter Lambert, 1998. "Horizontal Inequity: Some New Perspectives," CESifo Working Paper Series 162, CESifo.
    • Handle: RePEc:ces:ceswps:_162
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    File URL: https://www.cesifo.org/DocDL/ces_wp162.pdf
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    Cited by:

    1. Hans-Werner Sinn, 1999. "Inflation and Welfare: Comment on Robert Lucas," NBER Working Papers 6979, National Bureau of Economic Research, Inc.
    2. Roberto Galbiati & Pietro Vertova, 2008. "Horizontal Equity," Economica, London School of Economics and Political Science, vol. 75(298), pages 384-391, May.

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    Keywords

    horizontal inequity; reranking;

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