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Four Levers of Redistribution: The Impact of Tax and Transfer Systems on Inequality Reduction

Author

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  • Elvire Guillaud

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po)

  • Matthew Olckers

    (UP1 UFR02 - Université Paris 1 Panthéon-Sorbonne - UFR d'Économie - UP1 - Université Paris 1 Panthéon-Sorbonne, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Michaël Zemmour

    (CLERSÉ - Centre Lillois d’Études et de Recherches Sociologiques et Économiques - UMR 8019 - CNRS - Centre National de la Recherche Scientifique - Université de Lille, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

We use harmonized survey data from the Luxembourg Income Study to assess the redistributive impact of taxes and transfers across 22 OECD countries over the 1999–2016 period. After imputing missing tax data (employer social‐security contributions), we measure the reduction in income inequality from four key levers of tax and transfer systems: the average tax rate, tax progressivity, the average transfer rate, and transfer targeting. Our methodological improvements produce the following results. First, tax redistribution dominates transfer redistribution (excluding pensions) in most countries. Second, targeting explains very little of the cross‐country variation in inequality reduction. In contrast, both tax progressivity and the average tax rate have large impacts on redistribution. Last, there seem to be political tradeoffs: high average tax rates are not found together with highly progressive tax systems.

Suggested Citation

  • Elvire Guillaud & Matthew Olckers & Michaël Zemmour, 2020. "Four Levers of Redistribution: The Impact of Tax and Transfer Systems on Inequality Reduction," Post-Print hal-02735358, HAL.
  • Handle: RePEc:hal:journl:hal-02735358
    DOI: 10.1111/roiw.12408
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02735358
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    Cited by:

    1. Brzezinski, Michal, 2021. "Does income redistribution impede innovation?," OSF Preprints bazxr, Center for Open Science.
    2. Victor Amoureux & Elvire Guillaud & Michaël Zemmour, 2019. "It Takes Two to Tango Income and Payroll Taxes in Progressive Tax Systems," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-02735278, HAL.
    3. Ranaldi, Marco, 2021. "Global Distributions of Capital and Labor Incomes: Capitalization of the Global Middle Class," SocArXiv 3g59r, Center for Open Science.
    4. IVASKAITE-TAMOSIUNE Viginta & THIEMANN Andreas, 2021. "The budgetary and redistributive impact of pension taxation in the EU: A microsimulation analysis," JRC Working Papers on Taxation & Structural Reforms 2021-08, Joint Research Centre (Seville site).
    5. Clément Carbonnier, 2021. "Family-Based Tax and Transfer System – Issues for Income Tax and Other Public Policies," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Études Économiques (INSEE), issue 526-527, pages 41-48.
    6. Victor Amoureux & Elvire Guillaud & Michaël Zemmour, 2019. "It Takes Two to Tango : Income and Payroll Taxes in Progressive Tax Systems," LIS Working papers 779, LIS Cross-National Data Center in Luxembourg.
    7. Marco Ranaldi, 2021. "Global Distributions of Capital and Labor Incomes: Capitalization of the Global Middle Class," LIS Working papers 808, LIS Cross-National Data Center in Luxembourg.
    8. Orsetta Causa & Mikkel Hermansen, 2018. "Income Redistribution Through Taxes and Transfers across OECD Countries," LIS Working papers 729, LIS Cross-National Data Center in Luxembourg.
    9. 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.
    10. Victor Amoureux & Elvire Guillaud & Michaël Zemmour, 2019. "L'impact redistributif des modèles socio-fiscaux de protection sociale : analyse comparée internationale," Sciences Po publications info:hdl:2441/7o37b1vm588, Sciences Po.
    11. Michaël Sicsic, 2020. "Does Labor Income React more to Income Tax or Means-Tested Benefit Reforms?," TEPP Working Paper 2020-03, TEPP.
    12. Victor Amoureux & Elvire Guillaud & Michaël Zemmour, 2019. "It Takes Two to Tango Income and Payroll Taxes in Progressive Tax Systems," Working Papers hal-02735278, HAL.
    13. Orsetta Causa & Mikkel Hermansen, 2017. "Income redistribution through taxes and transfers across OECD countries," OECD Economics Department Working Papers 1453, OECD Publishing.
    14. Koen Caminada & Kees Goudswaard & Chen Wang & Jinxian Wang, 2019. "Income Inequality and Fiscal Redistribution in 31 Countries After the Crisis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(1), pages 119-148, March.

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    More about this item

    Keywords

    tax-transfer policies; social-security contributions; redistribution;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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