Measuring income tax discrimination

We propose a procedure for measuring the effect of systematic discriminatio n in the income tax. Different socioeconomic groups are assumed to face dif ferent tax schedules. We show that a welfare loss is caused by the group sp ecificity of schedules, the dollar value of which is our measure of discrim ination. Defining vertical equity as the dollar value of the tax system's w elfare superiority over an equal yield flat tax, discrimination equates to a loss in vertical equity. The Australian income tax is found to discrimina te against wage and salary earners, causing a roughly 1% loss of social wel fare in 1984.