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On the Measurement of Horizontal Inequity

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  • Mr. Peter J. Lambert

Abstract

This paper makes a new attack on the old problem of measuring horizontal inequity in the income tax. Local measures of inequality of posttax income among pretax equals are proposed, which reflect alternative value judgments about the nature and magnitude of an inequity. These measures are aggregated into global indices. The welfare gain from eliminating horizontal inequity revenue-neutrally, and the revenue gain from eliminating it welfare-neutrally, in each case preserving the vertical performance of the tax, are captured by these indices. Difficulties of implementation arising from the “identification problem” are discussed. A variation in the methodology validates banding the income data to create “close equals” groups. Simulations show that the banding procedure works well. A range of potentially fruitful applications is discussed.

Suggested Citation

  • Mr. Peter J. Lambert, 1995. "On the Measurement of Horizontal Inequity," IMF Working Papers 1995/135, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1995/135
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    Citations

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    Cited by:

    1. Peter J. Lambert, 2004. "Income Taxation and Equity," Working Papers 2004/4, Institut d'Economia de Barcelona (IEB).
    2. Jean-Yves Duclos & Peter Lambert, "undated". "A Normative Approach to Measuring Classical Horizontal Inequity," Discussion Papers 97/3, Department of Economics, University of York.
    3. Wagstaff, Adam & van Doorslaer, Eddy & van der Burg, Hattem & Calonge, Samuel & Christiansen, Terkel & Citoni, Guido & Gerdtham, Ulf-G & Gerfin, Mike & Gross, Lorna & Hakinnen, Unto, 1999. "Equity in the finance of health care: some further international comparisons1," Journal of Health Economics, Elsevier, vol. 18(3), pages 263-290, June.
    4. Adam Wagstaff, 2002. "Reflections on and alternatives to WHO's fairness of financial contribution index," Health Economics, John Wiley & Sons, Ltd., vol. 11(2), pages 103-115, March.
    5. Wagstaff, Adam & van Doorslaer, Eddy & van der Burg, Hattem & Calonge, Samuel & Christiansen, Terkel & Citoni, Guido & Gerdtham, Ulf-G. & Gerfin, Michael & Gross, Lorna & Hakinnen, Unto, 1999. "Redistributive effect, progressivity and differential tax treatment: Personal income taxes in twelve OECD countries," Journal of Public Economics, Elsevier, vol. 72(1), pages 73-98, April.
    6. DUCLOS, Jean-Yves, 1995. "Relative Performance, Relative Deprivation and Generalised Gini Indices of Inequality and Horizontal Inequity," Cahiers de recherche 9514, Université Laval - Département d'économique.
    7. Decoster, Andre & Schokkaert, Erik & Van Camp, Guy, 1997. "Is redistribution through indirect taxes equitable?," European Economic Review, Elsevier, vol. 41(3-5), pages 599-608, April.
    8. Sally Wallace & James Alm, 2004. "The Jamaican Individual Income Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0430, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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