This paper presents a novel technique to measure and compare the redistributive capacity of observed tax (or transfer) policies. The technique is based on income distribution simulations and controls for differences in pre-tax income distributions. It assumes that the only information on the pre-tax distribution available in each country-year is the Gini coefficient and the mean (GDP per capita). We illustrate the technique with an application to the personal income tax, using a dataset of 108 countries over the 2007-2018 period.
JEL Classification Numbers: D31,C63, H23, H24
Keywords: Income distribution, redistribution, progressivity, personal income tax Author’s E-Mail Address: firstname.lastname@example.org ; email@example.com
II. MEASURING THE REDISTRIBUTE EFFECT OF TAX POLICY
A. Progressivity and Redistribution Indices
B. Correcting for Differences in Pre-Tax Distributions
III. A SIMPLIFIED IMPLEMENTATION OF THE TRANSPLANT-AND-COMPAREMETHOD .
A. The Transplant-and-Compare Mechanics
B. Using Parametric Distributions of Pre-Tax Income
contribution in that respect is Dardanoni and Lambert (2002) , which proposes to “transplant” tax regimes into a common base with an identical pre-tax distribution, where they can be safely compared. A critical point, however, is that this procedure relies on consistent and comparable household-level microdata of income – a challenge in many emerging economies and low-income countries.
With a focus on applicability in environments with limited data availability, this paper introduces a simplified implementation of the transplant-and-comparemethod. It is assumed that the