redistributive tax

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A tax designed to alter the distribution of income or wealth. In practice, the redistribution is usually in the direction of greater equality, but history has recorded rulers who have used taxation to redistribute in their own favour and hence to increase inequality. A system of lump-sum taxation under which some consumers pay positive taxes while others receive subsidies is redistributive: it reduces income inequality if the subsidies are received by low-income consumers and positive taxes are paid by high-income consumers. The redistributive effect of the tax system can only be found by considering the net effect of all taxes; the redistributive effect of government intervention in total must take into account all transfers and taxes.

Subjects: Economics.

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