Efficiency and Equity Effects of Reforming the British System of Direct Taxation: A Utility-Based Simulation Methodology.

The simulation model presented in this paper shows how an estimated utility index, defined over net income and leisure, can be used to replicate labor-supply behavior individual by individual. This methodology is used to evaluate the efficiency and equity effects of two specific (revenue neutral) reforms of the British system of direct taxation. The first reform involves abolishing the married m an's tax allowance. The second abolishes this allowance only when the wife exhausts her own tax allowance. The second reform is the most efficient and it may also be preferable on distributional grounds. Copyright 1988 by The London School of Economics and Political Science.