ABSTRACT
This chapter is concerned with developing an inequality measure that will be appropriate for examining the redistributive effects of tax changes allowing for the full effects of these changes on individual labour supply and utility. It begins with the artificial case of a one-commodity model. The chapter aims to consider the problems involved in applying the new measure to a world of labour supply but no taxation. It introduces income tax followed by a discussion of what can be said about the effects of tax changes on inequality allowing for labour supply responses. The chapter aims to show how the more complex formula allowing for price differences across individuals will generalise to the n-commodity case. The Atkinson measure expresses the total tax so raised as a proportion of initial income. The introduction of an income tax affects individuals by altering both their utility levels and the net wage they face for their labour.
