Premium
Decomposing Inequality Changes: Allowing for Leisure in the Evaluation of Tax and Transfer Policy Effects
Author(s) -
Creedy John,
Hérault Nicolas
Publication year - 2015
Publication title -
fiscal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.63
H-Index - 40
eISSN - 1475-5890
pISSN - 0143-5671
DOI - 10.1111/1475-5890.12052
Subject(s) - economics , inequality , metric (unit) , labour supply , tax policy , value (mathematics) , population , labour economics , public economics , econometrics , microeconomics , tax reform , mathematics , operations management , medicine , environmental health , mathematical analysis , statistics
In this paper, we present two alternative methods of accounting for changes in leisure time in decomposing the inequality effects of tax and transfer policy changes. Three components are identified: tax policy, labour supply responses to tax policy changes and other population effects. The methods are used to decompose inequality changes in Australia between 2001 and 2006. Inequality is first defined in non‐welfarist terms as a function of disposable income: the independent judge places no value on leisure. Then, this is modified to allow for evaluations using a weighted geometric mean of disposable income and leisure. This is seen to modify the evaluation of changes in important ways. The results are found to differ from those obtained using a ‘welfarist’ evaluation in terms of money metric utility, where separate labour supply effects cannot be isolated.