Partial Horizontal Inequity Orderings: A Non-parametric Approach

We provide a partial ordering view of horizontal inequity (HI), based on the Lorenz criterion, associated with different post-tax income distributions and a (bistochastic) non-parametric estimated benchmark distribution. As a consequence, several measures consistent with the Lorenz criterion can be rationalized. In addition, we establish the so-called HI transfer principle, which imposes a normative minimum requirement that any HI measure must satisfy. Our proposed HI ordering is consistent with this principle. Moreover, we adopt a cardinal view to decompose the total effect of a tax system into a welfare gain caused by HI-free income redistribution and a welfare loss caused by HI, without any additive decomposable restriction on the indices. Hence, more robust tests can be applied. Other decompositions in the literature are seen as particular cases. Copyright 2005 Blackwell Publishing Ltd.