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The contribution of government transfer programs to inequality. A net-benefit approach

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Abstract

The contribution of government transfer programs to inequality is often assessed by analyzing to what extent the benefits paid go to lower income families. Several analysts have found that some key government transfers actually go mostly to middle and high income families and thus contribute to greater inequality. We argue in this paper that the impact of these programs on inequality should be evaluated considering the benefits received net of the taxes paid by households to finance the programs, since higher income households receive higher benefits but they also pay higher taxes. We illustrate this approach by estimating the impact of three government programs on inequality in Uruguay and show that the conclusions are different depending on whether we use gross or net benefits in the estimation.

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Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): XII (2009)
Issue (Month): (May)
Pages: 55-67

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Handle: RePEc:cem:jaecon:v:12:y:2009:n:1:p:55-67

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Keywords: transfers; inequality; redistribution;

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  1. Ann Harding & Richard Percival & Deborah Schofield & Agnes Walker, 2002. "The Lifetime Distributional Impact of Government Health Outlays," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(4), pages 363-379.
  2. Shorrocks, A F, 1982. "Inequality Decomposition by Factor Components," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 193-211, January.
  3. Kotlikoff, L.J. & Raffelhuschen, B., 1999. "Generational Accounting around the Globe," Norway; Department of Economics, University of Bergen, Department of Economics, University of Bergen 195, Department of Economics, University of Bergen.
  4. Atkinson, A.B., 2000. "Increased Income Inequality in OECD Countries and the Redistributive Impact of the Government Budget," Research Paper, World Institute for Development Economics Research 202, World Institute for Development Economics Research.
  5. Andrew Mason & Ronald Lee & An-Chi Tung & Mun-Sim Lai & Tim Miller, 2009. "Population Aging and Intergenerational Transfers: Introducing Age into National Accounts," NBER Chapters, National Bureau of Economic Research, Inc, in: Developments in the Economics of Aging, pages 89-122 National Bureau of Economic Research, Inc.
  6. Guillermo E. Perry & Omar S. Arias & J. Humberto López & William F. Maloney & Luis Servén, 2006. "Poverty Reduction and Growth : Virtuous and Vicious Circles," World Bank Publications, The World Bank, number 6997, August.
  7. Beblo, Miriam & Knaus, Thomas, 2001. "Measuring Income Inequality in Euroland," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 47(3), pages 301-20, September.
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Cited by:
  1. Alvaro Forteza & Irene Mussio, 2011. "Assessing Redistribution in the Uruguayan Social Security System," Documentos de Trabajo (working papers), Department of Economics - dECON 1211, Department of Economics - dECON.
  2. Alvaro Forteza, 2011. "Assessing Redistribution within Social Insurance Systems.The cases of Argentina, Brazil, Chile, Mexico and Uruguay," Documentos de Trabajo (working papers), Department of Economics - dECON 1311, Department of Economics - dECON.

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