5.1 Motivations and Objectives

In the earlier chapter we were concerned with income-by-income progressivity of a tax schedule. But very often it becomes necessary to get a concrete idea about the extent of overall progressivity of the schedule. For instance, a policy maker may be required to know whether the current system of taxation is sufficiently progressive. Another important issue that arises in this context is the problem of ranking between two or more tax schemes in terms of progressivity. A taxpayer in India may be interested in knowing whether the new tax system is more progressive than the earlier one.

A global or overall indicator of progressivity is a scalar representation of the degree of progressivity implicit under a tax program taken as a whole. In this chapter we make a detailed analytical treatment of tax progressivity on an all-inclusive footing and several related issues.

For checking global progressivity of a tax program, it is natural to expect that it is locally progressive everywhere. The two highly innovative propositions of Jakobsson (1976) suggest that this inquiry can be made along two lines: looking at the equalizing effect of taxation on the income distribution (redistributive effect) and checking to what extent the distribution of tax burdens is more unequally distributed than the incomes from which taxes are collected (departure from proportionality effect). The corresponding families of progressivity indicators are, therefore, consistent respectively with the local metrics “residual income progression” (RIP) and “tax liability progression” (TLP).