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Tax policy and income inequality in the US, 1979-2007

Author Info

  • Bargain, Olivier
  • Dolls, Mathias
  • Immervoll, Herwig
  • Neumann, Dirk
  • Peichl, Andreas
  • Pestel, Nico
  • Siegloch, Sebastian

Abstract

We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method allowing us to disentangle the policy effect from changing market incomes. Over the period 1979-2007, the cumulative policy effect aggravated inequality by increasing the income share of the top 20% in contrast to the middle class' share. The tax policy effect accounts for up to 29% of the total change in inequality; its contribution increases up to 41% if we take into account behavioral responses. While Republican policymakers increased inequality especially at the top, Democrats increased the income share of the bottom 80%.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 14-001.

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Date of creation: 2014
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Handle: RePEc:zbw:zewdip:14001
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Keywords: Tax policy; Inequality; Redistribution; Partisan Politics; Political Economy;

Find related papers by JEL classification:

  • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
  • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
  • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
  • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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Cited by:

  1. Peichl, Andreas & Pestel, Nico, 2014. "Earnings Inequality," IZA Policy Papers 89, Institute for the Study of Labor (IZA).

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