Nontaxable income and necessary consumption: the Rousseau’s paradox of fiscal egalitarianism

Faíña, Andres / A. and Lopez-Rodriguez, Jesus / J. and Varela, Laura / L. (2011): Nontaxable income and necessary consumption: the Rousseau’s paradox of fiscal egalitarianism.

Abstract

The traditional concept of a strict minimum of necessary consumption and nontaxable income equal for all taxpayers embedded in most current income-tax systems is the result of a paradox of fiscal egalitarianism. The paper shows that substituting the traditional notion of a strict minimum of nontaxable income (Surplus Income Tax Method) for a scheme of growing personal allowances to meet the amounts of necessary consumption required by the different living standards of the taxpayers (Discretionary Income Tax Method) generates an income-tax scheme more progressive than the traditional one. In the paper we also show that this alternative proposal for nontaxable incomes generates an after-tax income distribution less unequal (Lorenz dominance) and superior in terms of social welfare (Atkinson, 1970).

• Item Type: MPRA Paper
• Language: English
• Keywords: nontaxable income, necessary consumption, progressivity, tax burden, income distribution
• Subjects: D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies

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