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The Duclos-Jalbert-Araar decomposition of redistributive effect: implementation issues

Ivica, Urban (2011): The Duclos-Jalbert-Araar decomposition of redistributive effect: implementation issues.

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Abstract

Models decomposing the redistributive effect of fiscal systems into vertical and horizontal effects are extensively used by practitioners. The Duclos, Jalbert, and Araar’s (2003) model, despite its advantages, has not yet been widely employed in empirical research, possibly due to a relatively challenging implementation procedure that involves the estimation of expected post-fiscal incomes. To override these difficulties the designers of the software DAD (Duclos, Araar, and Fortin 2010) have incorporated a module for implementation of the model. However, the application of this module on Croatian tax-benefit system data revealed certain inaccuracies in the results. Carefully unfolding the calculation and estimation procedures needed for implementation of the model, this paper instructs practitioners on how to correctly apply the model and helps DAD designers improve their module.

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