SITE Seminar | Tax progressivity and income inequality: A simple formula
Join us for the next SITE Seminar! On March 3, 2026, we welcome Julius Andersson to present a simple, policy-relevant formula linking the progressivity of indirect taxes to two sufficient statistics: the income elasticity of the taxed good and the level of income inequality. The talk highlights how inequality can amplify regressive effects for taxes on necessities and amplify progressivity for taxes on luxuries - offering a practical lens for evaluating carbon, excise, and other indirect taxes.
Working paper title: Tax progressivity and income inequality: A simple formula
By: Julius Andersson
Abstract
This paper shows that the Kakwani index of tax progressivity for indirect taxes can be approximated by K=(eta - 1) G, where 'eta' is the income elasticity for the taxed good and G is the Gini coefficient. It follows that when the elasticity differs from unity, income inequality amplifies the magnitude of tax progressivity. A tax on necessities becomes more regressive as inequality rises; a tax on luxuries more progressive. If elasticities vary across the income distribution, this amplification is compounded. Tax progressivity thus depends on two sufficient statistics, yielding a simple formula for evaluating carbon, excise, and other indirect taxes.