Income Inequality and Taxation

Abstract

Summary–Income inequality measurement via the Gini index is reviewed, both pre-tax and post-tax for a general tax curve. Focus then shifts to the linear income tax with a single marginal tax rate and a common subsidy for all taxpayers. It is demonstrated that significant inequality reduction is possible with this simple tax structure. Finally, we benchmark against real incomes data from the U.S. Census Bureau and the U.S. Internal Revenue Service.