A switch from any given income tax schedule to a tax structure in which two groups of taxpayers are treated differently, each still facing the same degree of progression, can induce an increase in welfare despite causing horizontal inequity (HI). The thrust of much recent research, however, is...

A switch from any given income tax schedule to a differentiated tax structure in which two groups of taxpayers are treated differently, each still facing the same local degree of progression, can induce an increase in welfare despite causing horizontal inequity. We demonstrate this result in a...