8.1 Motivations and Objectives

As we have contended in Chapter 1, like inequality and polarization, deprivation is also a social bad. Runciman (1966) argued that the magnitude of deprivation perceived by a person for not being promoted is an increasing function of the number of persons who have been promoted. Yitzhaki (1979) considered deprivation with respect to income in the Runciman framework and showed that one credible index of deprivation in a society is the absolute Gini index for the society. Earlier, Sen (1973) argued that in any pair-wise comparison, the income shortfall of the worse-off person from the better-off person may be taken as a size of the degree of depression suffered by the worse off when he compares his position with that of the better off on the income scale. These depression sizes, when averaged across individuals in the society, generate the absolute Gini measure of inequality as a measure of social depression. A similar interpretation holds for the recently revived absolute Bonferroni standard of inequality (Chakravarty, 2007). Thus, when appropriately formulated, a tax policy desiring reduction of the Gini/Bonferroni measure of social deprivation effectively requires a curtailment in the inequality magnitude of before-tax incomes, as measured by the Gini/Bonferroni index.

In this chapter we examine the incidence of taxation on deprivation. More precisely, our objectives in the chapter are to design tax strategies that are intended to reduce social deprivation.