Discussion Papers no. 945

Assessing income tax perturbations

We present a scheme for analysing income tax perturbations, applied to a real Norwegian tax reform during 2016 - 2018

The framework decomposes the reform into a structural reform part and a tax level effect. The former consists of a distributional impact and a social e¢ ciency effect measured as the behavioural-induced change in tax revenue. Considering the overall welfare e¤ect conditional on inequality aversion, we back out the pivotal value of the decision makers’ inequality aversion, according to which unfavourable redistributional e¤ects exactly cancel out a social efficiency enhancement.

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