IDEAS home Printed from https://ideas.repec.org/a/spr/demogr/v57y2020i5d10.1007_s13524-020-00903-6.html
   My bibliography  Save this article

The Direct Effect of Taxes and Transfers on Changes in the U.S. Income Distribution, 1967–2015

Author

Listed:
  • Christopher Wimer

    (Columbia University)

  • Zachary Parolin

    (Columbia University)

  • Anny Fenton

    (Harvard Kennedy School, Harvard University)

  • Liana Fox

    (U.S. Census Bureau)

  • Christopher Jencks

    (Harvard Kennedy School, Harvard University)

Abstract

Scholars have increasingly drawn attention to rising levels of income inequality in the United States. However, prior studies have provided an incomplete account of how changes to specific transfer programs have contributed to changes in income growth across the distribution. Our study decomposes the direct effects of tax and transfer programs on changes in the household income distribution from 1967 to 2015. We show that despite a rising Gini coefficient, lower-tail inequality (the ratio of the 50th to 10th percentile) declined in the United States during this period due to the rise of in-kind and tax-based transfers. Food assistance and refundable tax credits account for nearly all the income growth between 1967 and 2015 at the 5th percentile and roughly one-half the growth at the 10th percentile. Moreover, income gains near the bottom of the distribution are concentrated among households with children. Changes in the income distribution were far less progressive among households without children.

Suggested Citation

  • Christopher Wimer & Zachary Parolin & Anny Fenton & Liana Fox & Christopher Jencks, 2020. "The Direct Effect of Taxes and Transfers on Changes in the U.S. Income Distribution, 1967–2015," Demography, Springer;Population Association of America (PAA), vol. 57(5), pages 1833-1851, October.
    • Handle: RePEc:spr:demogr:v:57:y:2020:i:5:d:10.1007_s13524-020-00903-6
    DOI: 10.1007/s13524-020-00903-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s13524-020-00903-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s13524-020-00903-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Robert Moffitt & John Karl Scholz, 2010. "Trends in the Level and Distribution of Income Support," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 111-152, National Bureau of Economic Research, Inc.
    2. Bruce D. Meyer & Nikolas Mittag, 2015. "Using Linked Survey and Administrative Data to Better Measure Income: Implications for Poverty, Program Effectiveness and Holes in the Safety Net," Upjohn Working Papers 15-242, W.E. Upjohn Institute for Employment Research.
    3. Timothy Smeeding & Gunther Schmaus & Brigitte Buhmann & Lee Rainwater, 1988. "Equivalence Scales, Well-Being, Inequality and Poverty: Sensitivity Estimates Across Ten Countries Using the LIS Database," LIS Working papers 17, LIS Cross-National Data Center in Luxembourg.
    4. Parolin, Zachary & Brady, David, 2018. "Extreme Child Poverty and the Role of Social Policy in the United States," SocArXiv u5ecn, Center for Open Science.
    5. Sabino Kornrich & Frank Furstenberg, 2013. "Investing in Children: Changes in Parental Spending on Children, 1972–2007," Demography, Springer;Population Association of America (PAA), vol. 50(1), pages 1-23, February.
    6. Liana Fox & Christopher Wimer & Irwin Garfinkel & Neeraj Kaushal & Jane Waldfogel, 2015. "Waging War on Poverty: Poverty Trends Using a Historical Supplemental Poverty Measure," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 34(3), pages 567-592, June.
    7. Nizar Jouini & Nora Lustig & Ahmed Moummi & Abebe Shimeles, 2018. "Fiscal Policy, Income Redistribution, and Poverty Reduction: Evidence from Tunisia," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 64(s1), pages 225-248, October.
    8. Elvire Guillaud & Matthew Olckers & Michaël Zemmour, 2020. "Four Levers of Redistribution: The Impact of Tax and Transfer Systems on Inequality Reduction," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(2), pages 444-466, June.
    9. Bruce D. Meyer & James X. Sullivan, 2012. "Winning the War: Poverty from the Great Society to the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 133-200.
    10. Zachary Parolin, 2019. "The Effect of Benefit Underreporting on Estimates of Poverty in the United States," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 144(2), pages 869-898, July.
    11. Richard V. Burkhauser & Kosali I. Simon, 2008. "Who Gets What From Employer Pay or Play Mandates?," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 11(1), pages 75-102, March.
    12. A. B. Atkinson & Stephen P. Jenkins, 2020. "A Different Perspective on the Evolution of UK Income Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(2), pages 253-266, June.
    13. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
    14. Christopher Wimer & Liana Fox & Irwin Garfinkel & Neeraj Kaushal & Jane Waldfogel, 2016. "Progress on Poverty? New Estimates of Historical Trends Using an Anchored Supplemental Poverty Measure," Demography, Springer;Population Association of America (PAA), vol. 53(4), pages 1207-1218, August.
    15. Ravallion, Martin & Chen, Shaohua, 2003. "Measuring pro-poor growth," Economics Letters, Elsevier, vol. 78(1), pages 93-99, January.
    16. Peter Bofinger & Philipp Scheuermeyer, 2019. "Income Distribution and Aggregate Saving: A Non‐Monotonic Relationship," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(4), pages 872-907, December.
    17. Brian Nolan & Max Roser & Stefan Thewissen, 2019. "GDP Per Capita Versus Median Household Income: What Gives Rise to the Divergence Over Time and how does this Vary Across OECD Countries?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(3), pages 465-494, September.
    18. Emmanuel Saez & Gabriel Zucman, 2016. "Editor's Choice Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(2), pages 519-578.
    19. Congressional Budget Office, 2018. "The Distribution of Household Income, 2015," Reports 54646, Congressional Budget Office.
    20. Congressional Budget Office, 2018. "The Distribution of Household Income, 2014," Reports 53597, Congressional Budget Office.
    21. Bradley Hardy & Timothy Smeeding & James P. Ziliak, 2018. "The Changing Safety Net for Low-Income Parents and Their Children: Structural or Cyclical Changes in Income Support Policy?," Demography, Springer;Population Association of America (PAA), vol. 55(1), pages 189-221, February.
    22. Brigitte Buhmann & Lee Rainwater & Guenther Schmaus & Timothy M. Smeeding, 1988. "Equivalence Scales, Well‐Being, Inequality, And Poverty: Sensitivity Estimates Across Ten Countries Using The Luxembourg Income Study (Lis) Database," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(2), pages 115-142, June.
    23. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    24. repec:bla:revinw:v:34:y:1988:i:2:p:115-42 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cai, Julie Y. & Wimer, Christopher & Berger, Lawrence & Maury, Matthew, 2023. "Intra-year employment instability and economic well-being among urban households: Mitigating effects of the social safety net," Children and Youth Services Review, Elsevier, vol. 148(C).
    2. Marina Gindelsky, 2022. "Do transfers lower inequality between households? Demographic evidence from Distributional National Accounts," Economic Inquiry, Western Economic Association International, vol. 60(3), pages 1233-1257, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bruch, Sarah K. & van der Naald, Joseph & Gornick, Janet C., 2022. "Poverty Reduction through Federal and State Policy Mechanisms: Variation Over Time and Across the U.S. States," SocArXiv jz5xp, Center for Open Science.
    2. Sarah K. Bruch & Janet C. Gornick & Joseph van der Naald, 2020. "Geographic Inequality in Social Provision: Variation across the US States," NBER Chapters, in: Measuring Distribution and Mobility of Income and Wealth, pages 499-527, National Bureau of Economic Research, Inc.
    3. François Bourguignon & Francisco Ferreira & Phillippe Leite, 2008. "Beyond Oaxaca–Blinder: Accounting for differences in household income distributions," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 6(2), pages 117-148, June.
    4. David Brady & Zachary Parolin, 2020. "The Levels and Trends in Deep and Extreme Poverty in the United States, 1993–2016," Demography, Springer;Population Association of America (PAA), vol. 57(6), pages 2337-2360, December.
    5. Chatterjee, Srikanta & Dalziel, Paul & Daunfeldt, Sven-Olov & Podder, Nripesh, 2008. "Income Inequality and Transformation of the Welfare State: A Comparative Study of the Reforms in New Zealand and Sweden," HUI Working Papers 20, HUI Research.
    6. Pedro Salas-Rojo & Juan Gabriel Rodríguez, 2022. "Inheritances and wealth inequality: a machine learning approach," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(1), pages 27-51, March.
    7. Prieto Suarez, Joaquin, 2021. "Poverty traps and affluence shields: modelling the persistence of income position in Chile," LSE Research Online Documents on Economics 110719, London School of Economics and Political Science, LSE Library.
    8. Bruce D. Meyer & Derek Wu & Grace Finley & Patrick Langetieg & Carla Medalia & Mark Payne & Alan Plumley, 2020. "The Accuracy of Tax Imputations: Estimating Tax Liabilities and Credits Using Linked Survey and Administrative Data," NBER Chapters, in: Measuring Distribution and Mobility of Income and Wealth, pages 459-498, National Bureau of Economic Research, Inc.
    9. Pogorelskiy, Kirill & Seidl, Christian & Traub, Stefan, 2010. "Tax progression: International and intertemporal comparison using LIS data," Economics Working Papers 2010-08, Christian-Albrechts-University of Kiel, Department of Economics.
    10. Pac, Jessica & Nam, Jaehyun & Waldfogel, Jane & Wimer, Chris, 2017. "Young child poverty in the United States: Analyzing trends in poverty and the role of anti-poverty programs using the Supplemental Poverty Measure," Children and Youth Services Review, Elsevier, vol. 74(C), pages 35-49.
    11. Riccardo Massari, 2005. "A Measure of Welfare Based on Permanent Income Hypothesis: An Application on Italian Households Budgets," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 64(1), pages 55-92, September.
    12. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2019. "Simplified Distributional National Accounts," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 289-295, May.
    13. Regan, Mark & Kakoulidou, Theano, 2022. "How important are the unit of analysis and equivalence scales when measuring income poverty and inequality? Evidence from Ireland," Papers WP721, Economic and Social Research Institute (ESRI).
    14. Bönke, Timm & Eichfelder, Sebastian, 2008. "Horizontale Gleichheit im Abgaben-Transfersystem: eine Analyse äquivalenter Einkommen von Arbeitnehmern in Deutschland," arqus Discussion Papers in Quantitative Tax Research 36, arqus - Arbeitskreis Quantitative Steuerlehre.
    15. Udo Ebert & Heinz Welsch, 2009. "How Do Europeans Evaluate Income Distributions? An Assessment Based On Happiness Surveys," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 803-819, September.
    16. Vincent Mahler, 2002. "Exploring the Subnational Dimension of Income Inequality: An Analysis of the Relationship between Inequality and Electoral Turnout in the Developed Countries," LIS Working papers 292, LIS Cross-National Data Center in Luxembourg.
    17. Tess Penne & Irene Cussó Parcerisas & Lauri Mäkinen & Bérénice Storms & Tim Goedemé, 2016. "Can reference budgets be used as a poverty line?," ImPRovE Working Papers 16/05, Herman Deleeck Centre for Social Policy, University of Antwerp.
    18. Harkness, Susan, 2022. "The accumulation of disadvantage: how motherhood and relationship breakdown influence married and single mothers’ economic outcomes," ISER Working Paper Series 2022-03, Institute for Social and Economic Research.
    19. Dana Rotz & Brian Goesling & Hande Inanc & Gregory Chojnacki, "undated". "Economic Benefits of Delayed Sexual Activity," Mathematica Policy Research Reports 248b878cd4254142ac8c13102, Mathematica Policy Research.
    20. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:demogr:v:57:y:2020:i:5:d:10.1007_s13524-020-00903-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.