Nontaxable income and necessary consumption: the Rousseau’s paradox of fiscal egalitarianism
Authors: Faíña; López-Rodríguez; Varela-Candamio
Source: Applied Economics, Volume 45, Number 30, 1 October 2013 , pp. 4248-4259(12)
Abstract:This article compares a tax method featuring flat rates and fixed allowances equal for all taxpayers (Surplus Income Tax Method (SITM) procedure) with a tax method featuring also flat rates and increasing personal allowances (IPAs) to meet the amounts of necessary consumption required by the different living standards (Discretionary Income Tax Method (DITM) procedure). Our results show that the DITM procedure generates an after-tax income distribution less unequal and superior in terms of social welfare. Moreover, the assumption (for comparison purposes) of identical total tax revenues leads to the corollary that the flat tax rate under the DITM is necessarily larger than the one under the SITM; being thus, the former taxmethod is more progressive than the latter. These results imply an obvious paradox considering the commonly accepted principle that basic necessities are the same for everyone (Rousseau, 1755). Based on the results obtained in this article, we have labelled this paradox as the Rousseau’s paradox of fiscal egalitarianism.
Document Type: Research Article
Affiliations: Department of Economic Analysis and Business Administration and Research Group Jean Monnet on Competitiveness and Regional Development, University of ACoruña, A Coruña, Spain
Publication date: 1 October 2013