Disentangling income inequality and the redistributive effect of social transfers and taxes in 36 LIS countries
The aim of this paper is to offer detailed information of fiscal redistribution in 36 countries, employing data that have been computed from the Luxembourg Income Study’s micro-level database. LIS data are detailed enough to allow us to measure both overall redistribution, and the partial effects of redistribution by several taxes or transfers. We elaborate on the work of Jesuit and Mahler (2004) and Mahler and Jesuit (2006), and we refine, update and extent their Fiscal Redistribution approach. LIS data allow us to decompose the trajectory of the Gini coefficient from primary to disposable income inequality in several parts: we will distinguish 11 different benefits and several income taxes and social contributions in our empirical investigation across countries. First, we use LIS data to analyze income inequality and the redistributive effect of social transfers across countries in a descriptive way. Then we proceed with a simulation approach for 36 countries for which we decompose income inequality through several taxes and transfers. We analyze the redistributive effect of several social programs, like unemployment benefits or pensions and income taxes. We develop a budget incidence simulation model to investigate to what extent several social transfers contribute to the overall redistribution in modern welfare states under a strong assumption that the absence of social transfers and taxes would not change individual behavior and labor supply. Among all countries listed in this paper, Denmark and Sweden have the smallest income disparity, while Peru and Colombia have the largest. Nordic countries show the most equally distributed disposable incomes and primary incomes, comparing to the countries in other types of welfare states. On average, large primary income disparity exists in Anglo-Saxon countries. Generally speaking, European countries achieve lower levels of income inequality than other countries. With respect to the redistributive effect, our budget incidence analysis indicates that the pattern is diverse across countries. The largest redistribution is found for Belgium, while Colombia and Peru show rather limited overall redistributive effects. On average, transfers reduce income inequality by over 85 percent, while taxes account for only 15 percent of total redistribution. Among all welfare states, Continental European countries (Belgium, France, Germany, and Luxembourg) achieve the highest level of the reduction of initial income inequality. As far as social programs is concerned, in most countries two dominant income components account for above 50 percent of total reduction in income inequality: the public old age pensions and the survivors scheme, and the income taxes. For example, in Southern European Countries the public old age benefits account for over 80 percent of total redistribution, while these figures are much lower for Anglo-Saxon Countries (20-34%), for Nordic Countries (31-48%), for Continental European Countries (47-57%), and for Central Eastern European Countries (54-70%). In Anglo-Saxon Countries income taxes play a major role (above 30%) compare to other countries (with the exception the United kingdom). Also the redistributive effect of social assistance and child and family benefits in the Anglo-Saxon Countries are relatively high in a comparative setting (9-28%). In Nordic Countries also a variety of other social programs contribute to the reduction of inequality, especially the disability scheme (9-15%). Remarkably, across countries all other social benefit programs seem to have rather limited redistributive effects, although the unemployment compensation benefits do have some effect too.
|Date of creation:||04 Aug 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Immervoll, Herwig & Levy, Horacio & Lietz, Christine & Mantovani, Daniela & O'Donoghue, Cathal & Sutherland, Holly & Verbist, Gerlinde, 2005.
"Household Incomes and Redistribution in the European Union: Quantifying the Equalising Properties of Taxes and Benefits,"
IZA Discussion Papers
1824, Institute for the Study of Labor (IZA).
- Immervoll, Herwig & Levy, Horacio & Lietz, Christine & Mantovani, D. & O'Donoghue, Cathal & Sutherland, Holly & Verbist, Gerlinde, 2005. "Household incomes and redistribution in the European Union: quantifying the equalising properties of taxes and benefits," EUROMOD Working Papers EM9/05, EUROMOD at the Institute for Social and Economic Research.
- Immervoll, Herwig & Levy, Horacio & Lietz, Christine & Mantovani, Daniela & O'Donoghue, Cathal & Sutherland, Holly & Verbist, Gerlinde, 2006. "Household Incomes and Redistribution in the European Union: Quantifying the Equalising Properties of Taxes and Benefits," Economics Series 184, Institute for Advanced Studies.
- Cecilia García-Peñalosa & Elsa Orgiazzi, 2013.
"Factor Components of Inequality: A Cross-Country Study,"
AMSE Working Papers
1318, Aix-Marseille School of Economics, Marseille, France.
- Cecilia García-Peñalosa & Elsa Orgiazzi, 2013. "Factor Components of Inequality: A Cross-Country Study," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(4), pages 689-727, December.
- Cecilia García-Peñalosa & Elsa Orgiazzi, 2013. "Factor Components of Inequality: A Cross-Country Study," Working Papers halshs-00802825, HAL.
- Lerman, Robert I & Yitzhaki, Shlomo, 1985. "Income Inequality Effects by Income," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 151-56, February.
- repec:cup:cbooks:9780521562621 is not listed on IDEAS
- Goudswaard, Kees & Caminada, Koen, 2008. "The redistributive impact of public and private social expenditure," MPRA Paper 20178, University Library of Munich, Germany.
- Koen Caminada & Kees Goudswaard, 2005.
"Are Public and Private Social Expenditures Complementary?,"
International Advances in Economic Research,
International Atlantic Economic Society, vol. 11(2), pages 175-189, May.
- Caminada, Koen & Goudswaard, Kees, 2004. "Are public and private social expenditures complementary?," MPRA Paper 20179, University Library of Munich, Germany.
- Koen Caminada & Kees Goudswaard, 2001.
"International Trends in Income Inequality and Social Policy,"
International Tax and Public Finance,
Springer, vol. 8(4), pages 395-415, August.
- Caminada, Koen & Goudswaard, Kees, 2001. "International trends in income inequality and social policy," MPRA Paper 20181, University Library of Munich, Germany.
- Clemens Fuest & Judith Niehues & Andreas Peichl, 2010. "The Redistributive Effects of Tax Benefit Systems in the Enlarged EU," Public Finance Review, , vol. 38(4), pages 473-500, July.
- Caminada, Koen & Goudswaard, Kees, 2008. "Effectiveness of poverty reduction in the EU: A descriptive analysis," MPRA Paper 20167, University Library of Munich, Germany.
- Paolo Figini, 1998. "Inequality Measures, Equivalence Scales and Adjustment for Household Size and Composition," Economics Technical Papers 988, Trinity College Dublin, Department of Economics.
- Kenworthy, Lane, 2011. "Progress for the Poor," OUP Catalogue, Oxford University Press, number 9780199591527, March.
- Jenkins, Stephen P, 1995. "Accounting for Inequality Trends: Decomposition Analyses for the UK, 1971-86," Economica, London School of Economics and Political Science, vol. 62(245), pages 29-63, February.
- Andrea Brandolini & Timothy M. Smeeding, 2007. "Inequality Patterns in Western-Type Democracies: Cross-Country Differences and Time Changes," CHILD Working Papers wp08_07, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
- Fuest, Clemens & Niehues, Judith & Peichl, Andreas, 2009. "The Redistributive Effects of Tax Benefit Systems in the Enlarged EU," IZA Discussion Papers 4520, Institute for the Study of Labor (IZA).
- Anthony C. Atkinson, 2003. "Income Inequality in OECD Countries: Data and Explanations," CESifo Working Paper Series 881, CESifo Group Munich.
- 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.
- Palme, Mårten, 1994.
"Income Distribution Effects of the Swedish 1991 Tax Reform: An Analysis of a Microsimulation Using Generalized Kakwani Decomposition,"
SSE/EFI Working Paper Series in Economics and Finance
5, Stockholm School of Economics.
- Palme, Marten, 1996. "Income distribution effects of the Swedish 1991 tax reform: An analysis of a microsimulation using generalized Kakwani decomposition," Journal of Policy Modeling, Elsevier, vol. 18(4), pages 419-443, August.
- Paul, Satya, 2004. "Income sources effects on inequality," Journal of Development Economics, Elsevier, vol. 73(1), pages 435-451, February.
- R. A. Musgrave & Tun Thin, 1948. "Income Tax Progression, 1929-48," Journal of Political Economy, University of Chicago Press, vol. 56, pages 498.
- Michael Förster & Peter Whiteford, 2009. "How much Redistribution do Welfare States Achieve? The Role of Cash Transfers and Household Taxes," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 7(3), pages 34-41, October.
- Alejandro Lopez-Feldman, 2006. "Decomposing inequality and obtaining marginal effects," Stata Journal, StataCorp LP, vol. 6(1), pages 106-111, March.
- Jean-Marc Burniaux & Thai-Thanh Dang & Douglas Fore & Michael F. Förster & Marco Mira d'Ercole & Howard Oxley, 1998. "Income Distribution and Poverty in Selected OECD Countries," OECD Economics Department Working Papers 189, OECD Publishing.
- Stark, Oded & Taylor, J Edward & Yitzhaki, Shlomo, 1986. "Remittances and Inequality," Economic Journal, Royal Economic Society, vol. 96(383), pages 722-40, September.
- Timothy M. Smeeding, 2005. "Public Policy, Economic Inequality, and Poverty: The United States in Comparative Perspective," Social Science Quarterly, Southwestern Social Science Association, vol. 86(s1), pages 955-983.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:32821. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.