Identifying Tax Implicit Equivalence Scales

Publication date: 9 Jan 2015 | Publication type: NIESR Discussion Paper | NIESR Author(s): Van de Ven, J | External Author(s): Herault, N; Azpitarte, F | JEL Classification: D31, H23, I38 | NIESR Discussion Paper Number: 444

This paper describes a simple and tractable method for identifying equivalence scales that reflect the value judgements implicit in a tax-benefit system. The approach depends on two identifying assumptions and a functional description for transfer payments that can be estimated using common micro-data. We use this approach to evaluate tax implicit equivalence scales for the UK tax-transfer system that applied in April 2009. The estimated tax implicit scales vary positively with tax unit size and generally decrease with gross earnings, consistent with recent estimates calculated on consumption data. We conclude by discussing potential applications for the proposed tax implicit scales.

Keyword tags: 
equivalence scale
horizontal equity