Taxation, Reranking and Equivalence Scales

It is conjectured that if the government has a distributional objective and formulates tax policy with a view to equitable treatment of households, then adopting the scale that is implicit in transfer policy should identify only reranking that has no equity foundation. This motivates the question: can the reranking‐minimizing scales be identified as those implicit in the transfer system? The analysis presented in this study suggests that the equivalence scale which minimizes reranking, while not necessarily equal to the tax implicit equivalence scale, is nevertheless in its vicinity.