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Accounting for Income Changes over the Great Recession (2007-2010) Relative to Previous Recessions: The Importance of Taxes and Transfers

  • Jeff Larrimore
  • Richard V. Burkhauser
  • Philip Armour

With data from the March CPS and using shift-share analysis, we analyze the factors that account for changes in post-tax post-transfer income during each of the past four recessions. What distinguishes the Great Recession is that drops in employment rather than wage earnings drove income declines. In addition, taxes and transfers played a much greater role in offsetting market income losses --a result largely missed in analyses that do not account for taxes and transfers. This is particularly so among the bottom quintile of the distribution where lower and increased transfers offset more than one-half of the market income declines.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19699.

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Date of creation: Dec 2013
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Handle: RePEc:nbr:nberwo:19699
Note: LS PE
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  1. Bargain, Olivier & Callan, Tim, 2007. "Analysing the effects of tax-benefit reforms on income distribution: a decomposition approach," EUROMOD Working Papers EM5/07, EUROMOD at the Institute for Social and Economic Research.
  2. Burkhauser, Richard V. & Feng, Shuaizhang & Jenkins, Stephen P. & Larrimore, Jeff, 2009. "Recent trends in top income shares in the USA: reconciling estimates from March CPS and IRS tax return data," ISER Working Paper Series 2009-27, Institute for Social and Economic Research.
  3. Danziger, Sheldon & Haveman, Robert & Plotnick, Robert, 1981. "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 19(3), pages 975-1028, September.
  4. Jeff Larrimore & Richard V. Burkhauser & Shuaizhang Feng & Laura Zayatz, 2008. "Consistent Cell Means for Topcoded Incomes in the Public Use March CPS (1976-2007)," NBER Working Papers 13941, National Bureau of Economic Research, Inc.
  5. Burtless, Gary, 1999. "Effects of growing wage disparities and changing family composition on the U.S. income distribution," European Economic Review, Elsevier, vol. 43(4-6), pages 853-865, April.
  6. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
  7. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  8. Olivier Bargain & Mathias Dolls & Herwig Immervoll & Dirk Neumann & Andreas Peichl & Nico Pestel & Sebastian Siegloch, 2011. "Tax policy and income inequality in the U.S., 1978—2009: A decomposition approach," Working Papers 215, ECINEQ, Society for the Study of Economic Inequality.
  9. Andrea Brandolini & Anthony B. Atkinson, 2001. "Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 771-799, September.
  10. Macunovich, Diane J., 2009. "Reversals in the Patterns of Women's Labor Supply in the U.S., 1976-2009," IZA Discussion Papers 4512, Institute for the Study of Labor (IZA).
  11. Mulligan, Casey B., 2012. "The Redistribution Recession: How Labor Market Distortions Contracted the Economy," OUP Catalogue, Oxford University Press, number 9780199942213, March.
  12. Tom Clark & Andrew Leicester, 2004. "Inequality and two decades of British tax and benefit reform," Fiscal Studies, Institute for Fiscal Studies, vol. 25(2), pages 129-158, June.
  13. Philip Armour & Richard V. Burkhauser & Jeff Larrimore, 2013. "Deconstructing Income and Income Inequality Measures: A Crosswalk from Market Income to Comprehensive Income," American Economic Review, American Economic Association, vol. 103(3), pages 173-77, May.
  14. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
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