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School of Economics and Finance

No. 832: Should the Rich be Taxed More? The Fiscal Inequality Coefficient

John Hatgioannides , Cass Business School
Marika Karanassou , Queen Mary University of London
Hector Sala , Departament d'Economia Aplicada (UAB), IZA Fellow, Institute for the Study of Labor (Bonn)

September 15, 2017

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This paper holistically addresses the effective (relative) income tax contribution of a given income (or, wealth) group. The widely acclaimed standard in public policy is the absolute benefaction of a given income group in filling up the fiscal coffers. Instead, we focus on the ratio of the average income tax-rate of an income group divided by the percentage of national income (or wealth) appropriated by the same income group. In turn, we develop the Fiscal Inequality Coefficient which compares the effective percentage income tax payments of pairs of income (or wealth) groups. Using data for the US, we concentrate on pairs such as the Bottom 90% versus Top 10%, Bottom 99% versus Top 1% and Bottom 99.9% versus Top 0.1%. We conclude that policy makers with a strong social conscience should re-evaluate the progressivity of the income tax system and make the richest echelons of the income and wealth distributions pay a fairer and higher tax.

J.E.L classification codes: H23, H30, E64

Keywords:Fiscal policy; progressive income taxation; inequality; effective income tax rate; fiscal inequality coefficient