Research seminar: Evealing Inequality Aversion from Tax Policy

Kristoffer Berg, UiO:  https://sites.google.com/view/kristofferberg/

Link to the seminar:  Click here to join the meeting

Revealing Inequality Aversion from Tax Policy

Abstract: Governments have increasing access to information about individuals, but they exploit little of this in setting taxes. This paper shows how to reveal inequality aversion from observed tax policy when governments restrict the information they choose to exploit. The first contribution is to map social marginal welfare weights into the concerns for vertical and horizontal equity. While vertical equity provides the standard inequality aversion rationale for redistributive taxation, horizontal equity introduces a restriction against tax discrimination based on certain characteristics. Building on the inverse optimal tax problem, I develop a theory and optimal tax algorithm to reveal the priority on each concern. The second contribution is to estimate the relevant parameters and apply the model to gender neutral taxation in Norway. In the application, I find that inequality aversion is overestimated by up to 30 percent when horizontal equity is ignored.