A Comparison of Alternative Measures of Tax Progressivity: The Case of the Child and Dependent Care Credit.

Current tax progressivity studies reflect a significant bias in favor of the Suits index of tax progressivity over other tax progressivity indexes. Although the Suits index is not without merit, it fails to assess the impact of tax progressivity on income inequality. This limitation is significant when judged from the standpoint that a principal justification for tax progressivity is the expectation that it will reduce income inequality. In this study, a detailed analysis of the features, the nature, and the sources of the limitations of seven alternative tax progressivity indexes is presented. The indexes are then applied to examine whether or not the child and dependent care credit was progressive during the 1979-86 period. The empirical results, which are sensitive to the choice of the index, suggest that the practice of arbitrarily selecting and applying the Suits index will lead to incomplete inferences about the progressivity effects of tax systems.