Income Inequality and Elasticity of Personal Income Tax Pawan K Aggarwal This paper develops a technique for estimating the effect of a change in inequality in the distribution of income on the yield of personal income tax. The technique is applied to estimate the effect of income inequality on the yield of personal income tax in India. It is found that, for a given tax schedule, an increase (decrease) in inequality in the distribution of income among the taxpayers increases (decreases) yield of personal income tax in India. Further, the study brings out that in India, during 1966-67 to 1983-84, inequality in taxable income was marked by a declining trend, and this had substantial negative impact on elasticity of the tax. Had the inequality remained unchanged, elasticity of the tax with respect to gross domestic product would have been around 149 instead
