SSE/EFI Working Paper Series in Economics and Finance
Income Distribution Effects of the Swedish 1991 Tax Reform: An Analysis of a Microsimulation Using Generalized Kakwani Decomposition
Abstract: In 1991 a major tax reform was implemented in Sweden. This
study compares the income equalization (income redistribution), vertical
and horizontal equity properties of the pre- and post-reform tax and
transfer systems. The method used is a decomposition, first proposed by
Kakwani (1984), of the difference between the generalized Gini coefficients
of the pre- and post-tax/transfer income districutions. The post-reform
income distribution was obtained through a microsimulation carried out by
the Ministry of Finance. Several findings emerge from the study. (i) The
distribution of original incomes is unambiguously more equal under the
post-reform regime. (ii) The increased amounts of child and housing
allowances have a considerable equalizing effect. (iii) The pre-reform tax
system has a larger vertical redistributive (equalizing) component. The
decreased progressivity is the most important explanation in the lower end
of the distribution, while the decreased tax rate explains more of the
difference in the upper end. (iv) The reform increased horizontal equity.
(v) It is a value judgement which of the distributions of disposable income
are the most equal. The first four of these main findings apply when the
calculations were redone within each separate household group. The overall
methodological conclusion is that much more information was gained when
different generalizations of the decomposition were considered.
Keywords: Horizontal equity; generalized Gini coefficient; tax progressivity; (follow links to similar papers)
JEL-Codes: H20; D31; (follow links to similar papers)
40 pages, January 1994
- This paper is forthcoming as:
Palme, Mårten, 'Income Distribution Effects of the Swedish 1991 Tax Reform: An Analysis of a Microsimulation Using Generalized Kakwani Decomposition', Journal of Policy Modeling.
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