A detailed analysis of progressivity (or of the broader concept of redistribution), requires a welfare ranking of individuals or households (or at least of a set of disaggregated groupings of individuals or households), and for tax liabilities of each individual or household (or group) to be ascertained. This can be achieved for certain taxes where: (a) the economic incidence of the tax can be determined with at least a reasonable degree of confidence; and (b) the necessary data is available distinguishing rich from poor among those that the economic incidence of the tax falls on.

The most notable example is the personal income tax (PIT), as tax liabilities can be linked to taxpayers at different income levels. Most simply this can be done through analysis of the underlying PIT rate schedule, or in a more complex manner through use of household income or consumption survey data (potentially augmented with tax return data), and simulation of tax liabilities. Furthermore, there is broad consensus that the incidence of the PIT falls predominantly, if not entirely, on the individuals earning the income. Consequently, the majority of empirical analyses of tax progressivity focus on the PIT. This attention is unsurprising given that the PIT is the primary tax instrument used in most countries to achieve distributional objectives. Even so, there are significant data limitations associated with PIT analyses, such as the underreporting of top incomes in survey data, tax avoidance and tax evasion, which affect the accuracy of microdata-based analyses.<sup>2</sup> Detailed microdata-based analyses are also highly resource intensive and often suffer from significant time lags.

For countries with comprehensive systems (where labor and capital income are taxed together under the PIT), PIT analyses can capture taxes imposed on labor and personal capital income. In schedular systems (where personal capital income is taxed separately, and often at lower rates than labor income) it is more challenging to capture personal capital income. Use of tax return data can often aid the capture of capital income taxes, but introduces other potential problems regarding the representativeness of the data.

Distributional analyses can also be undertaken for social security contributions (SSCs), although incidence becomes more questionable, especially regarding employer contributions. Furthermore, the treatment of the pension component of social contributions raises the more general question regarding the degree to which contributions reflect a pure tax as compared to compulsory savings. In some cases, information on property taxes is also obtainable from household surveys enabling distributional analysis.<sup>3</sup> Meanwhile, consumption survey microdata can be used to model the progressivity of consumption taxes, such as the value-added tax (VAT) and excise taxes (including health- and energy-related taxes). In such analyses, a standard assumption is made that incidence falls entirely on consumers, although empirical evidence suggests this is not always the case (see, e.g., IHS, 2011; Benedek et al., 2019; Benzarti et al.,

> 2 Underreporting of top incomes in household income survey data is a key issue being considered as part of the overall tax progressivity and inclusive growth project. Two approaches are currently being developed: (1) a methodology utilizing information from tax return data to adjust top incomes in income surveys for underreporting; and (2) a pareto distribution-based approach to adjust top incomes in income surveys when tax return data is not available. A further problem is that top incomes in tax return data will not reflect tax avoidance (or evasion). For example, income that is retained in a closely held company will typically not be realized (and taxed) at the personal level until distributed, enabling corporate structures to be used for tax avoidance. In this regard, Alstadsaeter et al. (2016) link individual and firm level data in Norway in order to attribute business income to individuals as it accrues, finding that this significantly increases the share of total income held by top income earners.

3 There remains debate in the literature regarding the extent to which recurrent property taxes exhibit features of a benefits tax and hence are closer in nature to a payment for services (and consequently have no distributional impact) as opposed to a tax. For a summary, see Zodrow (2007).

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