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Tax policy and income inequality in the U.S., 1978—2009: A decomposition approach

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Author Info

  • Olivier Bargain

    ()
    (UC Dublin, IZA and CEPS/INSTEAD)

  • Mathias Dolls

    ()
    (University of Cologne and IZA)

  • Herwig Immervoll

    ()
    (OECD, ISER and IZA)

  • Dirk Neumann

    ()
    (University of Cologne and IZA)

  • Andreas Peichl

    ()
    (IZA, University of Cologne, ISER and CESifo)

  • Nico Pestel

    ()
    (University of Cologne and IZA)

  • Sebastian Siegloch

    ()
    (University of Cologne and IZA)

Abstract

We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method that allows us to disentangle mechanical effects due to changes in pre-tax incomes from direct effects of policy reforms. While tax reforms implemented under Democrat administrations, in particular the EITC reforms in the 1990s and the ARRA in 2009, had an equalizing effect at the lower half of the distribution, the disequalizing effects of Republican reforms are due to tax cuts for high-income families. As a consequence of partisan politics, overall policy effects almost cancel out over the whole time period.

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File URL: http://www.ecineq.org/milano/WP/ECINEQ2011-215.pdf
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Bibliographic Info

Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 215.

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Length: 47 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2011-215

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Web page: http://www.ecineq.org
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Keywords: Tax policy; Inequality; Redistribution; Political Economy; Great Recession;

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Cited by:
  1. Nicholas Rohde & Ross Guest, 2013. "Multidimensional Racial Inequality in the United States," Social Indicators Research, Springer, vol. 114(2), pages 591-605, November.
  2. Immervoll, Herwig & Richardson, Linda, 2011. "Redistribution Policy and Inequality Reduction in OECD Countries: What Has Changed in Two Decades?," IZA Discussion Papers 6030, Institute for the Study of Labor (IZA).
  3. Jeff Larrimore & Richard V. Burkhauser & Philip Armour, 2013. "Accounting for Income Changes over the Great Recession (2007-2010) Relative to Previous Recessions: The Importance of Taxes and Transfers," NBER Working Papers 19699, National Bureau of Economic Research, Inc.
  4. Oliver Denk & Robert P. Hagemann & Patrick Lenain & Valentin Somma, 2013. "Inequality and Poverty in the United States: Public Policies for Inclusive Growth," OECD Economics Department Working Papers 1052, OECD Publishing.

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