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Income Redistribution Through Taxation and Social Services

Income Redistribution Through Taxation and Social Services

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Published by: quintus14 on Oct 13, 2012
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INCOME REDISTRIBUTION THROUGH TAXATION ANDSOCIAL SERVICES
:
SOME INTERNATIONALCOMPARISONSby Colin Clark and
G.
H.
Peters
RBDIS~UBUTION
f income through the levying of taxation andthe provision of social services was one of the principal subjectsdiscussed at the 1961 Conference of the International Associa-tion for Research in Income and Wealth. The seven papers onthis subject which are presented in this volume summarizeinformation on these matters from the U.S.A., the U.K.,Germany, Denmark, Norway, and India. In addition, the editorshave been granted permission to quote some of the principalresults from another study for the United States, just completedand as yet unpublished, prepared by Professor P.
K.
Newman.It will be seen that Newman's results, which are summarized inan appendix to this Introduction, show the burden of taxationon the lower-middle ranges of income as being much higher thanestimated in the paper by Professor Musgrave.It was decided during the Conference that the editors of thevolume of collected papers should attempt to make limitedinternational comparisons of the incidence of taxation in thevarious countries considered by bringing together in a standardform the information to be found in each of the papers. This hasproved to be a virtually impossible task, though a number ofinteresting features have appeared. It is the purpose of thisIntroduction to describe the broad aims of the papers and, inthe process, to point to the difficulties of making firmly basedcomparisons.At the outset a difference of approach may be distinguished.Some of the papers, noticeably those of Musgrave, Newman,and Aukrust, have as their aim the measurement of the taxburden imposedupon different income groups in the countriesconcerned. The interest is primarily in the effects of the collec-tion of taxes, considerations of the ways in which the moneycollected is ultimately spent being deferred. Two other papers,those of Nicholson and Bjerke, take account both of taxcollection and Government expenditures on the provision ofsocial services of various types. The paper by Goseke is mainly
1.W.-H
99
 
loo
INCOME
AND
WEALTH:
SERIESX
concerned with the first approach, but moves on, to a limitedextent, to cover the second aspect as well. The paper by Mrs.Goldsmith falls into the first group with the qualification thatshe attempts to measure the incidence of income tax on varioussocio-economic groups. She considers fewer taxes than doNewman and Musgrave in their studies of the United States,but pursues the effects of the incidence of income taxes to adeeper level.Professor Rao's paper, being concerned with an under-developed economy, falls into a different category. While thedeveloped countries are more concerned with the distributionof the total income the preoccupation of the underdevelopedcountries lies in raising incomes. While this difference is by nomeans clear cut, it does result in Professor Rao's paper standingapart from the others. Its aim is to discover whether the currenttaxation policy of the Indian Government is having effectsfavourable to the fostering of economic growth by transferringpurchasing power into the hands of the entrepreneural class,who may be expected to use it in a way likely to acceleratedevelopment.
~~
The papers of Goldsmith and Rao, then, must be left asidein the discussion which follows. It is also necessary to leaveaside Aukrust's note on Norwegian data. The resuits of thisinvestigation are presented only in differential incidence formand cannot easily be compared with the work contained in theother papers.In studies of tax incidence at different levels of income anumber of decisions must be made at the outset. These maycover the following points:1.
An
income 'concept' must be chosen.
2.
The types of taxes to be included must be decided upon.
3.
A decision must be made as to whether the study is tocover 'persons' or 'family units'.
4.
If
taxes other than income tax are to be included, problemsof 'incidence' will arise and must be settled.
5.
If
it
is dccided to study taxation affecting families it mightbc thought advisable to distinguish them
by
size
groupings.6.A choice as to the source ofdata must be maie. Heriasample survey may or may not be preferred to the use of'aggregate' data.
 
COLIN
CLARK AND
G.
H.
PETERS
101In the work of Musgrave, Nicholson, Bjerke, Newman, andGoseke with which we are concerned different decisions onpractically all these points have been made. Nicholson, in hispaper, chooses to use a sample survey method to investigate theeffects of taxation and of 'welfare' expenditure on family unitsof different composition. The income concept used is that offamily money income (this includes income in kind but nottransfer payments received from the State). The direct taxesconsidered are income tax and surtax plus the nationalinsurancecontributions of both employees and employers, the latter beingregarded as part of personal income. Indirect taxes coveredinclude customs and excise duties and purchase tax on finishedconsumable goods, in both cases the incidence being assumed tofall entirely on the consumer, and local rates on the dwellingoccupied by the household. (Indirect taxation on intermediategoods, e.g. on motor fuel for commercial vehicles, or rates onbusiness premises, whose effects are diffused but may be expectedultimately to raise the price of consumption goods, are not takeninto account: if they were, the total incidence of taxation shownwould be distinctly higher.) Using this information, the effectsof tax collection, and the incidence of taxes within each familysize group, may be assessed. Then, however, Nicholson moveson to consider a wide range of direct and indirect benefitsreceived by families. These include all Government transferpayments as well as the benefit obtained from the NationalHealth Service which operates in Britain, and from Stateeducation. In essence the aim is to find 'break even' incomepoints, for each family size, where tax payments are balancedby benefits received.Goseke, in his study of Germany, proceeds in a quite differentway. In thekitplace, he is concerned only with income tax andinsurance contributions, using aggregate rather than samplesurvey data. His primary concern is with the incidence of thesetaxes on personal income from various sources (self-employ-ment and private companies, wages, and salaries). At this stagehe is not concerned with family units, but rather with individualincome receivers. However, he then moves on to consider theeffects of taxes on income and of direct transfer payments (otherbenefits excluded) on household income. There is no considera-tion of the effects on households of different sizes and com-positions, as opposed to households having different incomes,

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