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The Impact of Redistributive Policies on Inequality in OECD Countries

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  • Philipp Doerrenberg

    (CGS, University of Cologne)

  • Andreas Peichl

    (IZA, University of Cologne, ISER and CESifo)

Abstract

Recent discussions about rising inequality in industrialized countries have triggered calls for more government intervention and redistribution. Due to obvious behavioral effects caused by redistribution, it is however not clear whether redistributional policies are indeed able to combat inequality. This paper contributes to this relevant research question by using different contextual country-level data sources to study inequality trends in OECD countries since the 1980s. We first investigate the development of inequality over time before analyzing the question of whether governments can effectively reduce inequality. Different identification strategies, using fixed effects and instrumental variables models, provide some evidence that governments are capable of reducing income inequality despite countervailing behavioral adjustments. The effect is stronger for social expenditure policies than for progressive taxation, which seems to trigger more inequality increasing indirect behavioral effects. Our results also suggest that the use of secondary inequality data should be handled with caution.

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Bibliographic Info

Paper provided by Cologne Graduate School in Management, Economics and Social Sciences in its series Cologne Graduate School Working Paper Series with number 03-05.

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Date of creation: 13 Apr 2012
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Handle: RePEc:cgr:cgsser:03-05

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Keywords: Inequality; Redistribution; Social Expenditure; Progressive Taxation;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Inequality in OECD Countries
    by maximorossi in NEP-LTV blog on 2012-05-11 16:54:58
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Cited by:
  1. Thibault Darcillon, 2012. "Do Interactions between Finance and Labor Market Institutions Affect Wage Distribution ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00768908, HAL.
  2. Unal Tongur & Adem Yavuz Elveren, 2013. "Deunionization and Pay Inequality in OECD Countries: A Panel Granger Causality Approach," ERC Working Papers 1306, ERC - Economic Research Center, Middle East Technical University, revised May 2013.
  3. Thibault Darcillon, 2012. "Do Interactions between Finance and Labor Market Institutions Affect Wage Distribution?," Documents de travail du Centre d'Economie de la Sorbonne 12089, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  4. Andreas Kuhn, 2012. "Redistributive preferences, redistribution, and inequality: Evidence from a panel of OECD countries," ECON - Working Papers 084, Department of Economics - University of Zurich.
  5. Katrin Sommerfeld, 2012. "Higher and Higher?: Performance Pay and Wage Inequality in Germany," SOEPpapers on Multidisciplinary Panel Data Research 476, DIW Berlin, The German Socio-Economic Panel (SOEP).
  6. Andreas Kuhn, 2012. "Redistributive Preferences, Redistribution and Inequality: Evidence from a Panel of OECD Countries," NRN working papers 2012-08, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  7. Kuhn, Andreas, 2012. "Redistributive Preferences, Redistribution, and Inequality: Evidence from a Panel of OECD Countries," IZA Discussion Papers 6721, Institute for the Study of Labor (IZA).
  8. European Commission, 2013. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2013 Report," Taxation Papers 38, Directorate General Taxation and Customs Union, European Commission.

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