A benchmark measure of income for assessing the distributional effects of tax reform

Abstract

A basic difficulty inherent in analyzing tax-induced changes in the distribution of income is to identify a concept of income that is economically meaningful and unaltered by changes in tax laws. The present paper introduces a concept of income that is, as much as possible, invariant to changes in the tax code. Comparisons of the distribution of total cash income with those of other measures of income that are directly affected by tax reforms can shed light on the distributional effects of changes in tax laws.