A Suggestion for Evaluating the Redistributional Effects of Tax Changes: With an Application to the 2006 Norwegian Tax Reform

• Published in: Public finance review Vol. 40; no. 3; pp. 303 - 338
• Main Authors: Thoresen, Thor O., Bø, Erlend E., Fjærli, Erik, Halvorsen, Elin
• Format: Journal Article
• Language: English
• Published: Los Angeles, CA SAGE Publications 01.05.2012; SAGE PUBLICATIONS, INC
• Subjects: Data analysis; Economics; Fiscal policy; Income tax; Income taxes; Measurement; Norway; Public finance; Redistributive taxation; Studies; Tax reform; Tax systems; Norway; common base; redistributional effects; income tax; measurement problems; timing effects
• ISSN: 1091-1421; 1552-7530
• DOI: 10.1177/1091142111432446

An evaluation strategy for answering the question, “Is the tax schedule more redistributive after a reform than prior to a reform?” is presented. The procedure builds upon addressing measures of tax redistribution, utilizing micro data from periods before and after the reform. Tax redistributional effects are measured in terms of a “common base” approach, which means that a benchmark is established which facilitates identifying how the redistributional efforts of policy makers develop over time. When applying this method for evaluation of the 2006 Norwegian tax reform, the results suggest that the modification of the dual income tax system of the 2006 reform has improved the redistributional effect of the schedule. This conclusion is qualified by addressing measurement challenges brought up by the reform, such as behavioral responses and timing effects.