Suits-Index

The Suits Index of Public Policy is a measure of the collective progressivity, which is named after the U.S. economist Daniel Burbidge Suits ( * 1918).

Explanation

The calculation of the Suits Index is similar to the Gini coefficient. First the Lorenz curve of the tax burden is constructed. On the abscissa, the relative share is on taxable income (in the case of income tax, generally, the tax base of the tax), starting with the smallest, sorted. On the ordinate, however, the relative share of the total tax revenue is removed. The Suits index then reflects the area between the 45 degree line and the Lorenz curve. In the case of a progressive tax ( for example, a rising rate of income tax), the Lorenz curve is below the 45 ° line and the Suits index is positive. A proportional control, in which each household is taxed at the same rate, is characterized by a Suits index of zero; a Degressivsteuer ultimately has a negative Suits index; the Lorenz curve is above the 45 ° line A theoretical control, the richest person pays the entire tax revenue, would have the Suits index equal to 1, and a control in which the poorest person pays all characterized by a Suits index of -1.

Tax types

Income Tax

By definition of the Suits index for a flat tax ( flat tax ) 0 However, permit most income tax systems for any income ( a tax credit ) is obtained without taxes to avoid that taxes are collected by very low income earners. In addition, most income tax systems provide higher marginal tax rates for higher incomes. These effects combine to make income taxes generally progressive, which is reflected in a positive Suits Index.

VAT

The value added tax ( VAT) is levied generally without low tax exemptions on goods. In addition, companies generally give at lower income tax a larger share of their income on taxable merchandise, while companies will save or invest at higher income tax a larger share of their income. Consequently, sales taxes are generally degressive and have a negative Suits index.

Excise duties

Consumption taxes are typically levied on goods such as gasoline, alcohol or tobacco products. Since the tax rate is typically high and there is a practical maximum quantity of products to be consumed, this tax is generally degressive and has a very negative Suits index.

Properties

The Suits index has the useful property that the overall index Suits a variety of taxes or other policies is the weighted sum of the individual volume indexes. This is closely related with the Gini coefficient. While a Gini coefficient of 0 means that all individuals obtain the same income or per capita income, means a Suits index of 0, however, that each person pays the same percentage of income in taxes. In addition, a poll tax has a Suits index, which is equal to the negative Gini coefficient for the same group.

Examples

Criticism

Critics of the Suits index argue that the income balances over the lifetime, so that consumption is a better measure of economic welfare. Therefore, comparisons should reflect the tax burden on consumption.