This paper builds a new microdatabase that covers 100 countries at all income levels and long-run time series in the United States (1870–2010) and Mexico ( 1960–2010) to document how the modern tax ...system arises over development. I establish a new set of stylized facts, which show that the income tax exemption threshold decreases in the income distribution as a country develops, tracking growth in the employee share of employment that occurs gradually further down the income distribution. Additional evidence supports the interpretation that the rise in third-party covered income through increases in employee share drives expansions of the income tax base over development. (JEL D31, H23, H24, H71, J22, J23, N40)
Atkinson’s book
Inequality: What Can Be Done?
(Harvard University Press,
2015
) sets out a range of concrete proposals aimed at reducing income inequality, which cover a very broad span but include ...major changes to the income tax and social transfers system and the minimum wage. These are framed with specific reference to the UK but have much broader relevance in demonstrating how substantial the impact on inequality of such measures could be. This paper assesses the first-round effects of these tax, transfer and minimum wage reforms on income inequality and poverty based on a microsimulation approach using EUROMOD. The reforms involve a significantly more progressive income tax structure, a major increase in the minimum wage to the level which is estimated to represent the ‘Living Wage’, and alternative routes to reforming social transfers – either to strengthen the social insurance element or to restructure the entire system as a Participation Income (a variant of Basic/Citizen’s Income). The results show how the first-round effects of either set of tax and transfer proposals would be to substantially reduce the extent of income inequality and relative income poverty and the paper draws out how the two approaches differ in their effects. The additional impact of raising the minimum wage to the Living Wage is modest, reflecting in particular the position of beneficiaries in the household income distribution and the offsetting effects on household income of the withdrawal of means-tested cash transfers.
The diffusion and adoption of modern information technology provide new chance for China to close urban-rural income gap. This paper uses China's provincial panel data from 2002 to 2013 to ...investigate the effect of computer penetration on rural residents' income. A public program aiming to connect every village with broadband Internet and other rural facilities provides plausibly exogenous variation in rural residents' availability and adoption of the broadband Internet, which is used to explore the instrument variable for rural computer penetration. The results show that rural computer penetration tends to increase rural residents' income over time, but the average effect remains limited. The dynamic panel threshold effects model, which allows for both the threshold variable and other covariates to be endogenous, is further used to explore the constraints of the income-increase effect of rural computer penetration. It shows that the effect is at least doubled over the average effect estimated from instrument variables method, once the digital divide causes are removed. Our findings have important implications for the government to increase rural residents' income and reduce urban-rural income gap by encouraging rural computer usage and removing the digital divide.
•Provincial Panel Data are used to estimate the effect of rural computer penetration on farmers' income in China.•Both the Instrumental variables method and dynamic panel threshold effects model are used to address the endogeneity issue.•Rural computer penetration increases farmers' income.•The income increase effect is constrained by the digital divide causes.
This paper first highlights the extent to which national income per head will be unreliable as an indicator of household income change over time around the middle for rich countries, in the short or ...long run, and will mislead as to the relative performance of countries in achieving broadly-based improvements in prosperity. It then demonstrates that ‘inequality-adjusting’ national income will not suffice to bridge the gap. The divergence between the trajectory of median household income and GDP/GNI per capita is due to a variety of factors that themselves vary in significance across countries and over time, with the distribution of the gains from growth being only one. Median income thus needs to be accorded a central role alongside GDP per capita in both official monitoring of living standards and research on inclusive growth. Growth in median incomes will not be a reliable measure of what is happening to the incomes of the poor, though, so low incomes and poverty certainly need to be separately monitored and analysed: one cannot assume that growth that transmits to the middle is also going towards the bottom.
This article reviews 98 aggregate and multilevel studies examining the associations between income inequality and health. Overall, there seems to be little support for the idea that income inequality ...is a major, generalizable determinant of population health differences within or between rich countries. Income inequality may, however, directly influence some health outcomes, such as homicide in some contexts. The strongest evidence for direct health effects is among states in the United States, but even that is somewhat mixed. Despite little support for a direct effect of income inequality on health per se, reducing income inequality by raising the incomes of the most disadvantaged will improve their health, help reduce health inequalities, and generally improve population health.
China is undergoing a market-oriented reform in energy and the residential sector will be involved in the near future. The analysis of energy poverty is crucial in breaking the illusion of the ...dilemma between enhancing energy efficiency and controlling poverty. Based on Chinese residential energy consumption survey, we firstly estimated the energy poverty in China by the “10% indicator” and “LIHC indicators”, and then proposed a “minimum end-use” method to classify the energy-poor households into lifeline and consumption energy poverty. Results show that energy poverty exists in China at the proportion of 18.9%, and 46% of the energy-poor houses are in short of modern energy consumption and are sensitive to tariffs, with a level of electricity consumption lower than the basic demand. The energy poverty rate is highest in central China, while the lifeline energy poor are relatively concentrated in the western region. In terms of public policy, we suggest focusing on heterogeneity by considering different groups of households when implementing energy efficiency measures, and targeting more on the consumption energy poor in poverty alleviation. We also suggest paying particular attention to targeting households with low income by supporting practices such as coupons for energy consumption and appliance purchasing.
•The 10% and LIHC indicators are effective in evaluating energy poverty in China.•Both the lifeline energy poverty and the consumption energy poverty exist in China.•The electricity use among the lifeline energy poor is not connected with income but rather tariff.•The electricity use of consumption energy poor increases with household income.•Energy poverty rate is highest in central China, and lifeline energy poverty concentrates more in the west.
To compare the predictive power of synthetic absolute income measures with that of asset-based wealth quintiles in low- and middle-income countries (LMICs) using child stunting as an outcome.
We ...pooled data from 239 nationally representative household surveys from LMICs and computed absolute incomes in US dollars based on households' asset rank as well as data on national consumption and inequality levels. We used multivariable regression models to compare the predictive power of the created income measure with the predictive power of existing asset indicator measures.
In cross-country analysis, log absolute income predicted 54.5% of stunting variation observed, compared with 20% of variation explained by wealth quintiles. For within-survey analysis, we also found absolute income gaps to be predictive of the gaps between stunting in the wealthiest and poorest households (P < .001).
Our results suggest that absolute income levels can greatly improve the prediction of stunting levels across and within countries over time, compared with models that rely solely on relative wealth quintiles.
Earlier studies have identified a pattern of cumulative advantage leading to increased within-cohort economic inequality over the life course, but there is a need to better understand how levels of ...inequality by age have changed in the evolving economic environment of recent decades. We utilized Survey of Income and Program Participation (SIPP) data to compare economic inequality across age groups for 2010 versus 1983-1984.
We examined changing age profiles of inequality using a summary measure of economic resources taking into account income, annuitized value of wealth, and household size. We adjusted for survey underreporting of some income and asset types, based on National Income Accounts and other independent estimates of national aggregates. We examined inequality by age with Gini coefficients.
Late-life (65+) inequality increased between the 2 periods, with Gini coefficients remaining higher than during the working years, but with a less steep age difference in inequality in 2010 than in 1983-1984. Inequality increased sharply within each cohort, particularly steeply in Depression-era, war-baby, and leading-edge baby boom cohorts. The top quintile of elderly received increasing shares of most income sources.
Increasing inequality among older people, and especially in cohorts approaching late life, presages upcoming financial challenges for elderly persons in the lower part of the income distribution. Implications of this increasingly high-inequality late-life environment need to be carefully evaluated as changes are considered in Social Security and other safety-net institutions, which moderate impacts of economic forces that drive increasingly disparate late-life economic outcomes.
We present theory and evidence highlighting the role of natural amenities in neighbourhood dynamics, suburbanization, and variation across cities in the persistence of the spatial distribution of ...income. Our model generates three predictions that we confirm using a novel database of consistent-boundary neighbourhoods in U.S. metropolitan areas, 1880–2010, and spatial data for natural features such as coastlines and hills. First, persistent natural amenities anchor neighbourhoods to high incomes over time. Secondly, naturally heterogeneous cities exhibit persistent spatial distributions of income. Thirdly, downtown neighbourhoods in coastal cities were less susceptible to the widespread decentralization of income in the mid-twentieth century and experienced an increase in income more quickly after 1980.
We examine the effects of Russia’s 2001 flat rate income tax reform on consumption, income, and tax evasion. We use the gap between household expenditures and reported earnings as a proxy for tax ...evasion with data from a household panel for 1998–2004. We associate large and significant changes in tax evasion following the flat tax reform with changes in voluntary compliance. We develop a consumption‐based framework to assess the deadweight loss from income tax in the presence of tax evasion and show that the efficiency gains from the reform are at least 30 percent smaller than the gains implied by conventional approaches.
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