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

  • Björklund, Anders

    ()

    (Swedish Institute for Social Research)

  • Palme, Mårten

    ()

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

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.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 197.

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Length: 27 pages
Date of creation: 29 Sep 1997
Date of revision:
Publication status: Forthcoming in New Economics of Rising Inequalities, Cohen, David, Piketty, Thomas, Saint-Paul, Gille (eds.), 2001, Oxford University Press, CEPR.
Handle: RePEc:hhs:hastef:0197
Contact details of provider: Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-(0)8-736 90 00
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  1. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
  2. Hause, John C, 1980. "The Fine Structure of Earnings and the On-the-Job Training Hypothesis," Econometrica, Econometric Society, vol. 48(4), pages 1013-29, May.
  3. 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 423-31, December.
  4. 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 405-26, December.
  5. 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 351-75, September.
  6. Maasoumi, Esfandiar & Zandvakili, Sourushe, 1986. "A class of generalized measures of mobility with applications," Economics Letters, Elsevier, vol. 22(1), pages 97-102.
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