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Tax policy and income inequality in the U.S., 1978—2009: A decomposition approach

  • Olivier Bargain


    (UC Dublin, IZA and CEPS/INSTEAD)

  • Mathias Dolls


    (University of Cologne and IZA)

  • Herwig Immervoll


    (OECD, ISER and IZA)

  • Dirk Neumann


    (University of Cologne and IZA)

  • Andreas Peichl


    (IZA, University of Cologne, ISER and CESifo)

  • Nico Pestel


    (University of Cologne and IZA)

  • Sebastian Siegloch


    (University of Cologne and IZA)

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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Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 215.

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Length: 47 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2011-215
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