We provide a new and unexplored explanation of the relationship between the functional and personal distribution of income. By proposing a simple theoretical framework, we show that, in the ...noncomprehensive personal income tax (PIT) hypothesis (i.e., when some or all capital income items are excluded from the PIT base), the correlation between disposable and market income inequality depends on the labor share level, which may influence the overall effectiveness of the tax-benefit system in addition to the PIT progressivity. We test our hypothesis using panel data on 33 OECD countries from 2000 to 2017 and find that a 10-pp increase in labor share is related to a 0.06 reduction in the correlation between market and disposable income inequality. This significant result obtained after controlling for country and year fixed effects, country-specific linear trends, and several confounders capturing the characteristics of the tax-benefit system suggests that labor share may act as an "automatic stabilizer" of market income inequality. Relevant implications for tax policy concern the role of the PIT's base for the public budget's overall redistributive effect.
Contributors including Brian Eno, Demos Helsinki, California's Y Combinator Research and prominent academics explore the impact Universal Basic Income could have on work, welfare and inequality in ...the twenty-first century.
We revisit to what extent the increase in income inequality since 1980 was mirrored by consumption inequality. We do so by constructing an alternative measure of consumption expenditure using a ...demand system to correct for systematic measurement error in the Consumer Expenditure Survey. Our estimation exploits the relative expenditure of high- and low-income households on luxuries versus necessities. This double differencing corrects for measurement error that can vary over time by good and income. We find consumption inequality tracked income inequality much more closely than estimated by direct responses on expenditures.
Rethinking the Welfare State Guner, Nezih; Kaygusuz, Remzi; Ventura, Gustavo
Econometrica,
November 2023, Letnik:
91, Številka:
6
Journal Article
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The United States spends significant amounts on non‐medical transfers for its working‐age population in a wide range of programs that support low‐ and middle‐income households. How valuable are these ...programs for U.S. households? Are there simpler, welfare‐improving ways to transfer resources that are supported by a majority? What are the macroeconomic effects of such alternatives? We answer these questions in an equilibrium, life‐cycle model with single and married households who face idiosyncratic productivity risk, in the presence of costly children and potential skill losses of females associated with non‐participation. Our findings show that a potential revenue‐neutral elimination of the welfare state generates large welfare losses in the aggregate, although most households support the move as losses are concentrated among a small group. We find that a Universal Basic Income program does not improve upon the current system. If, instead, per‐person transfers are implemented alongside a proportional tax, a Negative Income Tax experiment, it becomes feasible to improve upon the current system. Providing per‐person transfers to all households is costly, and reducing tax distortions helps to provide for resources to expand redistribution.
This article examines recent trends in inequality and poverty and the effects of distributional policies in China. After a discussion of data and measurement issues, we present evidence on national, ...as well as rural and urban, inequality and poverty. We critically examine a selection of policies pursued during the Hu–Wen decade that had explicit distributional objectives: the individual income tax, the elimination of agricultural taxes and fees, minimum wage policies, the relaxation of restrictions on rural–urban migration, the minimum living standard guarantee programme, the “open up the west” development strategy, and the development-oriented rural poverty reduction programme. Despite these policies, income inequality in China increased substantially from the mid-1990s through to 2008. Although inequality stabilized after 2008, the level of inequality remained moderately high by international standards. The ongoing urban–rural income gap and rapid growth in income from private assets and wealth have contributed to these trends in inequality. Policies relaxing restrictions on rural–urban migration have moderated inequality. Our review of selected distributional policies suggests that not all policy measures have been equally effective in ameliorating inequality and poverty.
We quantify how sensitive is migration by star scientists to changes in personal and business tax differentials across states. We uncover large, stable, and precisely estimated effects of personal ...and corporate taxes on star scientists' migration patterns. The long-run elasticity of mobility relative to taxes is 1.8 for personal income taxes, 1.9 for state corporate income tax, and — 1.7 for the investment tax credit. While there are many other factors that drive when innovative individuals and innovative companies decide to locate, there are enough firms and workers on the margin that state taxes matter.
We study the dynamics of the distribution of wealth in an overlapping generation economy with finitely lived agents and intergenerational transmission of wealth. Financial markets are incomplete, ...exposing agents to both labor and capital income risk. We show that the stationary wealth distribution is a Pareto distribution in the right tail and that it is capital income risk, rather than labor income, that drives the properties of the right tail of the wealth distribution. We also study analytically the dependence of the distribution of wealth—of wealth inequality in particular—on various fiscal policy instruments like capital income taxes and estate taxes, and on different degrees of social mobility. We show that capital income and estate taxes can significantly reduce wealth inequality, as do institutions favoring social mobility. Finally, we calibrate the economy to match the Lorenz curve of the wealth distribution of the U.S. economy.
This paper provides estimates of federal tax rates by income groups in the United States since 1960, with special emphasis on very top income groups. We include individual and corporate income taxes, ...payroll taxes, and estate and gift taxes. The progressivity of the U.S. federal tax system at the top of the income distribution has declined dramatically since the 1960s. This dramatic drop in progressivity is due primarily to a drop in corporate taxes and in estate and gift taxes combined with a sharp change in the composition of top incomes away from capital income and toward labor income. The sharp drop in statutory top marginal individual income tax rates has contributed only moderately to the decline in tax progressivity. International comparisons confirm that is it critical to take into account other taxes than the individual income tax to properly assess the extent of overall tax progressivity, both for time trends and for cross-country comparisons. The pattern for the United Kingdom is similar to the U.S. pattern. France had less progressive taxes than the United States or the United Kingdom in 1970 but has experienced an increase in tax progressivity and has now a more progressive tax system than the United States or the United Kingdom.
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