Discussion Paper

No. 2019-26 | March 22, 2019
Shifting tax burden to top income earners: what is the best way to reduce inequality?


The authors analyze to what extent and how the tax burden should be shifted towards top income earners in order to reduce income inequality. Starting from Lambert and Aronson (Inequality decomposition analysis and the Gini coefficient revisited 1993) and Alvaredo (A note on the relationship between top income shares and the Gini coefficient 2011) decomposition by income groups, they prove that for three types of revenue-neutral linear personal income tax reforms based on Pfähler (1984) the redistributive effect is always higher than before the reform; and when the size of the rich group is sufficiently small (e.g. 1%), the best option is allocating tax changes proportionally to net income, and the worst doing it proportionally to tax liabilities. An empirical illustration of the theoretical results is provided using micro data from the Spanish PIT.

JEL Classification:

D31, D33, D63, H23, H24


  • Downloads: 302


Cite As

Jorge Onrubia, Fidel Picos, and María del Carmen Rodado (2019). Shifting tax burden to top income earners: what is the best way to reduce inequality? Economics Discussion Papers, No 2019-26, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2019-26

Comments and Questions

Carmen Díaz-Roldán - suggestion
May 08, 2019 - 11:58

The paper deals with a very pertinent topic, it has been elaborated with propriety and the results are relevant. However, the conclusions presented are too descriptive. A discussion about the implications of economic policy is missed. And should be also discussed the attitude of the fiscal authorities, which may show ...[more]

... different preferences from those of society. In this sense, the results obtained could vary taking in account the possibility of opting for efficiency, equity or redistribution.

Anonymous - Suggestion
May 10, 2019 - 18:55

The article analyses a very hot topic in the literature, the relationship between taxation of top income earners and inequality. This paper follows concerns arisen by Picketty and Saez from an innovative perspective. In addition, authors provide a clear theoretical contribution backed by a strong methodological framework.
Finally, I ...[more]

... would suggest to include a new table containing the nine reform scenarios (as the result of possible combinations) in order to make it easier to understand for the reader.

Rafael Granell - Suggestion
May 14, 2019 - 09:03

This paper is an interesting contribution about redistributive assessment of Personal Income Tax reforms. It introduces a new methodological approach to sort different types of reforms in terms of progressivity and distributional effect.

The empirical illustration using the Spanish PIT is very useful to understand the different parts of ...[more]

... the redistributive effect (between, within and interaction) but, in my opinion, the stylized PIT is too complex to assess redistributive effects. It has a progressive schedule, a regressive deduction and a progressive tax credit. From my point of view it would be easier to take into account an exponential progressive function to calculate the tax liability without deductions and tax credits, maintaining the same Gini indexes than in the original survey (if it is possible). The survey has an additional problem: it has individual and joint filings that are not completely comparable in distributional terms. It would be better to simulate only one type of filings (individual ones).

Anonymous - My comments
May 16, 2019 - 11:04

This paper is clearly written and very well structured. It obtains clear propositions derived from different reforms in personal income tax. The paper takes different pieces of theory (Alvaredo decomposition of Gini’s index, Phäler alternatives for linear tax reforms) and combines them to produce new results. Undoubtedly it could be ...[more]

... an important guide for policy proposals. It demonstrates that only few combinations of shifting tax burden to top income earners produce unambiguous results.
My main concern is about the empirical illustration. The use of the ‘stylized tax’ erodes the main conclusions of the theoretical part of the paper, as the world represented is not real. The main problem to be studied would be equally illustrated if using a theoretical distribution of income and taxes. In fact, what is really done is to construct a new sample just using a function similar to 2011 tax schedule for general income.

Anonymous - Referee Report 1
May 17, 2019 - 13:09

See attached file