A theoretical and practical study on linear reforms
of dual taxes
Samuel Calonge (1) and Oriol Tejada (2) *
(1)Department of Econometrics, Statistics and Spanish Economy; CREB.
Universitat de Barcelona, Av. Diagonal, 690; E-08034 Barcelona, Spain.
e-mail: [email protected]
(2) Department of Actuarial, Financial and Economic Mathematics.
Universitat de Barcelona, Av. Diagonal, 690; E-08034 Barcelona, Spain.
e-mail: [email protected]
February 20, 2009
Abstract
We extend the linear reforms introduced by Pfahler (1984) to the case of dual taxes.
We study the relative effect that linear dual tax cuts have on the inequality of income
distribution -a symmetrical study can be made for dual linear tax hikes-. We also in-
troduce measures of the degree of progressivity for dual taxes and show that they can
be connected to the Lorenz dominance criterion. Additionally, we study the tax liabil-
ity elasticity of each of the reforms proposed. Finally, by means of a microsimulation
model and a considerably large data set of taxpayers drawn from 2004 Spanish Income
Tax Return population, 1) we compare different yield-equivalent tax cuts applied to the
*The second author acknowledges Support from grant Programa FPU of Ministerio de Educacion y Ciencia
of the Spanish Government, from the Barcelona Economics Program of CREA, Ministerio de Educacion y
Ciencia and FEDER, under grant ECO2008-02344/ECON is acknowledged.