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Personal exemptions under the individual income tax are the
same level for each taxpayer,spouse,and each dependent after
1986. The regulation may not correspond with the rule of
fairness. Because the adequacy of the level of exemptions may be
affected by demographic characteristics. Household equivalence
scales are defined as ratios of cost functions between
demographically different households, so they have practical
applications in the design of tax policies. One of the tasks of
this thesis is to estimate household equivalence scales in order
to provide adequacy of the level of exemptions. The author makes
use of Engel model to estimate household equivalence scales and
have a reasonable result, so we also get a successful estimation
of personal exemptions. The rest of this thesis is to use three
indexes to measure horizontal inequity of individual income tax.
The indexes are coefficient of variation and the indexes used
by Aronson & Lambert(1994) and Plotnick(1981). In empirical
framework personal exemptions have two definitions. One is the
level of tax law, the other is the level that the author
estimate in the thesis.When personal exemptions are the latter,
the individual income tax is more equity. We can infer that
individual income tax are less equity when personal exemptions
are the same for everyone. If the level of personal exemptions
are made according to household equivalence scales will increase
extent of horizontal equity.
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