Decomposing Inequality Changes: Allowing for Leisure in the Evaluation of Tax and Transfer Policy Effects
John Creedy, Nicolas Herault
Fiscal Studies | WILEY-BLACKWELL | Published : 2015
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 r..View full abstract
Awarded by Economic and Social Research Council
Nicolas Herault acknowledges the support of a Faculty Research Grant from the Faculty of Business and Economics, University of Melbourne. We are grateful to Guyonne Kalb and a referee for helpful comments.