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IPS264 Oliver H. et al.
replicated and income distributions were manufactured in a counterfactual
fashion. The starting point is a distribution that would result if taxes were
levied without any deductions being made beforehand. Next, the partial effect
of a deduction is determined by simulating the income distribution after taxes
using the i-th deduction and calculating the difference of Gini coefficients. As
the first deduction usually yields the highest marginal tax relief, the effects are
slightly overstated. Therefore, all effects are normalized to sum to one.

5. Results

Figure 1 shows the net effect of each of the six taxes for 2001 and 2011
and provides a visual overview of the absolute income inequality reduction
effect of the single taxes. It can be seen that redistribution by income taxes is
more pronounced than by wealth taxes and federal income tax has the largest
effect. When comparing 2011 to 2001, inequality overall increased slightly. The
effect of deductions on redistribution generally persists in 2011. One
exception is the slight decrease of the impact of municipal income tax over
time.

Figure 1: Partial redistributive effect of income and wealth taxes

Note: Gini pre-tax refers to income inequality after social transfers but before taxes.

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