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Income Redistribution within the Life Cycle versus between Individuals: Empirical Evidence Using Swedish Panel Data

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  • Björklund, Anders

    () (Swedish Institute for Social Research)

  • Palme, Mårten

    () (Dept. of Economic Statistics, Stockholm School of Economics)

Abstract

The generalised entropy measure is applied to decompose overall income inequality over several years into one part showing inequality of long-run (permanent) income and one part showing variability of single individuals' incomes over time. By comparing these components of inequality for pre- and post-tax and benefit incomes, we get an estimate of how the welfare state affects two conceptually different components of income inequality. Using Swedish panel data covering 18 years, we find that income taxes primarily affect the distribution of long-run income. Although the main effecty of benefits is on smoothing intertemporal income variability, we also find an equalising impact on long-run income of benefits. Income variability is highest among those with low long-run income and the equalising effect of taxes and transfers within the life cycle is also largest in this group.

Suggested Citation

  • Björklund, Anders & Palme, Mårten, 1997. "Income Redistribution within the Life Cycle versus between Individuals: Empirical Evidence Using Swedish Panel Data," SSE/EFI Working Paper Series in Economics and Finance 197, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0197
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    References listed on IDEAS

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    1. Lehrer, Evelyn & Nerlove, Marc, 1981. "The Impact of Female Work on Family Income Distribution in the United States: Black-White Differentials," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 27(4), pages 423-431, December.
    2. Bird, Edward J, 1995. "An Exploratory Comparison of Income Risk in Germany and the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 41(4), pages 405-426, December.
    3. Hause, John C, 1980. "The Fine Structure of Earnings and the On-the-Job Training Hypothesis," Econometrica, Econometric Society, vol. 48(4), pages 1013-1029, May.
    4. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
    5. Maasoumi, Esfandiar & Zandvakili, Sourushe, 1986. "A class of generalized measures of mobility with applications," Economics Letters, Elsevier, vol. 22(1), pages 97-102.
    6. Cowell, Frank A, 1984. "The Structure of American Income Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 30(3), pages 351-375, September.
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    Citations

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    Cited by:

    1. Paolo Pertile & Veronica Polin & Pietro Rizza & Marzia Romanelli, 2012. "Public finance consolidation and fairness across living generations: the case of Italy," Working Papers 04/2012, University of Verona, Department of Economics.
    2. Bengtsson, Niklas & Holmlund, Bertil & Waldenström, Daniel, 2012. "Lifetime versus Annual Tax Progressivity: Sweden, 1968–2009," IZA Discussion Papers 6641, Institute for the Study of Labor (IZA).
    3. Thomas Raferzeder & Rudolf Winter-Ebmer, 2007. "Who is on the rise in Austria: Wage mobility and mobility risk," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 5(1), pages 39-51, April.
    4. Charlotte Bartels, 2012. "Redistribution and Insurance in the German Welfare State," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 132(2), pages 265-295.
    5. Cecilia Garcia Peñalosa & Orgiazzi, E., 2011. "GINI DP 12: Factor Components of Inequality. A Cross-Country Study," GINI Discussion Papers 12, AIAS, Amsterdam Institute for Advanced Labour Studies.
    6. Gustavsson, Magnus, 2002. "Earnings Dynamics and Inequality during Macroeconomic Turbulence: Sweden 1991-1999," Working Paper Series 2002:20, Uppsala University, Department of Economics.

    More about this item

    Keywords

    Generalised entropy; income inequality; income mobility; income taxes;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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