Suits index
The Suits Index is a measure of the progressiveness of a policy measure , such as a tax or a social transfer, which is named after the American economist Daniel Burbidge Suits (* 1918). Firstly, it records how unevenly the policy measure is distributed among the population. Second, it shows the extent to which poor or rich economic agents are affected. The Suits Index can be used, for example, to compare the extent to which different tax transfer systems redistribute income.
Explanation
The calculation of the suits index is similar to that of the Gini coefficient . First the Lorenz curve of the tax load is constructed. On the abscissa, the relative share of taxable income (in the case of income tax; generally the tax base) is arranged, starting with the smallest. The ordinate, on the other hand, shows the relative share of the total tax revenue . The suits index then reflects the area between the 45 ° line and the Lorenz curve. In the case of a progressive tax (for example, a rising income tax rate), the Lorenz curve runs below the 45 ° line and the suits index is positive. A proportional tax, where every household is taxed at the same rate, is characterized by a suits index of zero; Finally, a degressive tax has a negative suits index; the Lorenz curve runs above the 45 ° line. A theoretical tax where the richest person pays all the tax revenue would have a suits index of 1, and a tax where the poorest person pays everything has a suits index of −1.
Tax types
Income tax
By definition, the suits index for a flat tax is 0. However, almost all income tax systems allow any income that is received without tax (a tax exemption ) in order to avoid taxes being collected from very low income earners become. Furthermore, most income tax systems ensure higher marginal tax rates for higher incomes. These effects work together to make income taxes generally progressive, which is reflected in a positive suits index.
value added tax
The sales tax ( VAT ) is no small general tax exemptions applicable to commercial goods. In addition, companies generally spend a larger proportion of their income on taxable merchandise with lower income tax, while companies save or invest a larger portion of their income with higher income tax. As a result, sales taxes are generally degressive and have a negative suits index.
Excise duties
Excise taxes are typically levied on goods such as gasoline , alcohol or tobacco products . Since the tax rate is typically high and there is a practical maximum amount of products to be consumed, this tax is generally more degressive and has a very negative suits index.
properties
The suits index has the useful property that the overall suits index for a large number of taxes or other political concepts is the sum of the individual indices weighted according to revenue. This is also closely related to the Gini coefficient. While a Gini coefficient of 0 means that all people have the same income or a per capita income, a Suits Index of 0 means that each person pays the same percentage of income in taxes. In addition, a head tax has a suits index equal to the negative Gini coefficient for the same group.
Examples
| Suits index (2008, estimated) | Germany | Austria |
|---|---|---|
| Income tax | 0.256 | 0.386 |
| Consumption tax | -0.031 | -0.031 |
| Social security contributions | -0.016 | -0.017 |
| Social transfers | -0.734 | -0.668 |
criticism
Critics of the Suits Index claim that income balances out over a lifetime, so consumption is a better measure of economic welfare. Therefore, comparisons of the tax burden should relate to consumption.
Individual evidence
- ^ A b Daniel Burbidge Suits: Measurement of Tax Progressivity. In: The American Economic Review . 67, No. 4, 1977, pp. 747-752, JSTOR 1813408 .
- ↑ John E. Anderson, Atrayee Ghosh Roy & Paul A. Shoemaker: Confidence Intervals for the suits index . In: National Tax Journal 55 (1), 2003, pp. 81-90, doi : 10.17310 / ntj.2003.1.05 JSTOR 41789653
- ^ A. Peichl, S. Siegloch, N. Pestel: Is Germany really that progressive? In: Quarterly issues for economic research. 82nd volume, 1, DIW Berlin 2013, pp. 111–127, doi : 10.3790 / vjh.82.1.111 .
- ^ Alan J. Auerbach : A Consumption Tax . In: The Wall Street Journal .