Assessing income tax perturbations
Peer reviewed, Journal article
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OriginalversjonChristiansen, V., Jia, Z. & Thoresen, T.O. (2021). Assessing income tax perturbations. International Tax and Public Finance, 29, 472–504. https://doi.org/10.1007/s10797-021-09673-2 10.1007/s10797-021-09673-2
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 efficiency effect measured as the behavioural-induced change in tax revenue. Considering the overall welfare effect conditional on inequality aversion, we back out the pivotal value of the decision makers’ inequality aversion, according to which unfavourable redistributional effects exactly cancel out a social efficiency enhancement.