Merz: The Distribution of Income of Self-employed, Entrepreneurs and Professions
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7.2 Redistributional Effects of Taxation of Single Professions
The redistributional impacts are discussed - as above - by two approaches: first by the
relative differences of inequality measures (between the net and ‘gross’ taxable income
situation), and, second, by the overall redistributive scheme following Blackburn
(1989). Table 7 presents the relative differences (%) of the inequality measure set used
and the respective k-values for all of the 14 single professions. We concentrate our
discussion on the most important extreme results describing the range of inequality
betweeen the subgroups of professions.
Overall: whereas mean income is reduced by 22%, i.e. the mean tax rate is 22%, for all
working people, professions have a mean tax rate of 33%. Inequality is more reduced by
the tax system for professions (Gini: -11%) than overall (-9%). The redistributional
effect measured by the extreme tails (90/10 ratio) in particular is -30% overall and -42%
for professions.
Measured by the relative differences of the single Gini-coefficients between the net
income distribution and the taxable income (‘gross’) distribution (%) the most
redistributional impacts are given for medical doctors (-15,5%) and dentists (-13,1%).
Though it is not very surprising that for these relatively high income groups the
progressive income tax scheme has its highest impact with reducing inequality this
information is naturally not sufficient for measuring distributional effects. For
illustration, the high mean income group of auditors which ‘only’ has a Gini-coefficient
decrease of -7,8% is last in the 14 subgroups order. This picture is supported by the
Atkinson measure (? = 1).
The quintile relative changes are negative only for the 5th quintile by a range from -
6,5% for veterinary doctors to -19,4% of artistic professions (but taking into account the
relative small cell occupation by the artistic professions) followed by 11,7% for other
engineers /technicians. The redistributional impacts are very much in favour of the
lowest two quintiles with a range from 7,9% for paramedical professions up to natural
medical practioners with a 53,3% decrease in their 2nd quintile.
The redistributional impacts of the German tax system 1992 following Blackburn 1989
is measured in Table 7 by the overall lump-sum necessary to make the net income
distribution - after imposing the tax system - equally distributed (same inequality index)
as taxable (‘gross’) income. The results in Table 7 are ordered according to the lump-
sum as the DM amount k in % of the (‘gross’) taxable income before taxation (R%).
The lump-sum ranges from other engineers/technicians with R= -14,4% and architects
(R = -13,8%) showing the most impacts compared to paramedical professions (R = -
8,4%) and veterinary doctors (R = -6,6%). The absolute DM-values support the stated
heterogeneity also for the redistributional impacts with a range from k = -86.275 DM
for auditors and k = -28.240 DM for medical doctors compared to k = -5.025 DM for
paramedical professions and k = -4.597 for veterinary doctors to be paid to every person
below the median to show the before tax distribution. The redistributional difference
between all subgroups of professions is about 19 times for the extreme values of the k-
ordering, and 5,6 times if we consider the respective second.
The conclusion so far: not only the distributions but the connected redistributional
effects differs a lot and is quantified in our tables over all subgroups of professions.