Polarization, Inequality and Tax Reforms

In this article, polarization measurement is presented as a useful tool for characterizing the net transfers of income between individuals caused by a tax reform. The bipolarization measure, which considers just two poles and represents the idea of the disappearance of the middle class, may complement inequality measures insofar as it provides an alternative explanation of the distributional impact of inequality neutral tax reforms. Some theoretical implications of an inequality- and revenue-neutral tax reform concerning polarization are examined. We conclude with an empirical application. A simulation to evaluate the effects on polarization of a potential substitution of the current Spanish tax system for an inequality- and revenue- neutral linear tax is carried out.