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Tax Policy and Income Inequality in the U.S., 1978-2009: A Decomposition Approach

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Author Info

  • Bargain, Olivier

    ()
    (University of Aix-Marseille II)

  • Dolls, Mathias

    ()
    (ZEW Mannheim)

  • Immervoll, Herwig

    ()
    (OECD, Paris)

  • Neumann, Dirk

    ()
    (Université catholique de Louvain)

  • Peichl, Andreas

    ()
    (ZEW Mannheim)

  • Pestel, Nico

    ()
    (IZA)

  • Siegloch, Sebastian

    ()
    (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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5910.

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Length: 48 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5910

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Keywords: Great Recession; tax policy; inequality; redistribution; political economy;

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Cited by:
  1. 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.
  2. 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.
  3. Herwig Immervoll & Linda Richardson, 2011. "Redistribution Policy and Inequality Reduction in OECD Countries: What Has Changed in Two Decades?," OECD Social, Employment and Migration Working Papers 122, OECD Publishing.
  4. Nicholas Rohde & Ross Guest, 2013. "Multidimensional Racial Inequality in the United States," Social Indicators Research, Springer, vol. 114(2), pages 591-605, November.

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