Erik Plug

Household equivalence scales and household taxation

Erik Plug and Bernard M.S. van Praag and Joop Hartog

Strictly equal utility is seldom used as a compensation principle in real-world policy applications. We specify less radical norms for deriving income tax rates and find that equivalence defined as equal proportional sacrifice best fits the observed income tax structure in the Netherlands. We use the Leyden welfare function of income as our measure of utility.

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