Discussion Papers no. 647

Principles and measurement

Horizontal inequity under a dual income tax system

Tax systems with separate taxation of wage and capital income, also called dual income tax systems, have gained relevance through the Mirrlees Review. Obviously, such tax systems are exposed to horizontal equity (HE) failures, or horizontal inequity (HI). HE and HI have a firm grip on assessment of fair tax policies, both from an academic point of view and in general public debate. The dual income tax system of Norway was modified by the tax reform of 2006 precisely because the previous schedule failed to deliver equal tax treatment of equals. This paper discusses the meaning and measurement of HI effects of dual income tax systems, and evaluates the development of HI for Norway over the time period 2000–2008 using micro data. A copula-based identification strategy efficiently establishes a framework for evaluations of HI over time. The dual income tax system and the early announcement of its impending revision during the period under examination created measurement problems which we had to account for by defining a new income concept for the empirical strategy. As expected, we find less HI in Norway after the reform of 2006.

Om publikasjonen


Horizontal inequity under a dual income tax system. Principles and measurement


Erlend Eide Bø, Peter J. Lambert, Thor Olav Thoresen

Serie og -nummer

Discussion Papers no. 647


Statistics Norway


Discussion Papers



Antall sider




Om Discussion Papers

Discussion papers comprise research papers intended for international journals and books. A preprint of a Discussion Paper may be longer and more elaborate than a standard journal article as it may include intermediate calculations, background material etc.