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Four Levers of Redistribution: The Impact of Tax and Transfer Systems on Inequality Reduction

Author

Listed:
  • Elvire Guillaud

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques (Sciences Po) - Sciences Po - Sciences Po)

  • Matthew Olckers

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UP1 UFR02 - Université Paris 1 Panthéon-Sorbonne - École d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne)

  • Michaël Zemmour

    (CLERSÉ - Centre Lillois d’Études et de Recherches Sociologiques et Économiques - UMR 8019 - Université de Lille - CNRS - Centre National de la Recherche Scientifique, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques (Sciences Po) - Sciences Po - Sciences Po, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract
We use harmonized survey data from the Luxembourg Income Study to assess the redistributive impact of taxes and transfers across 22 OECD countries over the 1999–2016 period. After imputing missing tax data (employer social‐security contributions), we measure the reduction in income inequality from four key levers of tax and transfer systems: the average tax rate, tax progressivity, the average transfer rate, and transfer targeting. Our methodological improvements produce the following results. First, tax redistribution dominates transfer redistribution (excluding pensions) in most countries. Second, targeting explains very little of the cross‐country variation in inequality reduction. In contrast, both tax progressivity and the average tax rate have large impacts on redistribution. Last, there seem to be political tradeoffs: high average tax rates are not found together with highly progressive tax systems.

Suggested Citation

  • Elvire Guillaud & Matthew Olckers & Michaël Zemmour, 2020. "Four Levers of Redistribution: The Impact of Tax and Transfer Systems on Inequality Reduction," SciencePo Working papers Main hal-02735358, HAL.
    • Handle: RePEc:hal:spmain:hal-02735358
    DOI: 10.1111/roiw.12408
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    Cited by:

    1. Brzezinski, Michal, 2022. "Does income redistribution impede innovation?," Research Policy, Elsevier, vol. 51(10).
    2. Bruch, Sarah K. & van der Naald, Joseph & Gornick, Janet C., 2022. "Poverty Reduction through Federal and State Policy Mechanisms: Variation Over Time and Across the U.S. States," SocArXiv jz5xp, Center for Open Science.
    3. Paloma Péligry & Xavier Ragot, 2022. "Evolution of fiscal systems: Convergence or divergence?," Working Papers hal-03554224, HAL.
    4. Victor Amoureux & Elvire Guillaud & Michaël Zemmour, 2019. "It Takes Two to Tango Income and Payroll Taxes in Progressive Tax Systems," Working Papers hal-02735278, HAL.
    5. Ranaldi, Marco, 2021. "Global Distributions of Capital and Labor Incomes: Capitalization of the Global Middle Class," SocArXiv 3g59r, Center for Open Science.
    6. Paloma Péligry & Xavier Ragot, 2022. "Evolution of fiscal systems: Convergence or divergence?," Working Papers hal-03554224, HAL.
    7. Gaurav Datt & Ranjan Ray & Christopher Teh, 2022. "Progressivity and redistributive effects of income taxes: evidence from India," Empirical Economics, Springer, vol. 63(1), pages 141-178, July.
    8. Michaël Sicsic, 2022. "Does labour income react more to income tax or means‐tested benefits reforms?," Fiscal Studies, John Wiley & Sons, vol. 43(3), pages 291-319, September.
    9. Xabier Garcia-Fuente, 2021. "The Paradox of Redistribution in Time. Social Spending in 53 Countries, 1967-2018," LIS Working papers 815, LIS Cross-National Data Center in Luxembourg.
    10. IVASKAITE-TAMOSIUNE Viginta & THIEMANN Andreas, 2021. "The budgetary and redistributive impact of pension taxation in the EU: A microsimulation analysis," JRC Working Papers on Taxation & Structural Reforms 2021-08, Joint Research Centre.
    11. Clément Carbonnier, 2021. "Family-Based Tax and Transfer System – Issues for Income Tax and Other Public Policies," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 526-527, pages 41-48.
    12. Schröder, Carsten & König, Johannes & Fedorets, Alexandra & Goebel, Jan & Grabka, Markus M. & Lüthen, Holger & Metzing, Maria & Schikora, Felicitas & Liebig, Stefan, 2020. "The economic research potentials of the German Socio-Economic Panel study," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 21(3), pages 335-371.
    13. Brady, David, 2022. "Income And Wealth As Salient Gradational Aspects Of Stratification," SocArXiv pny3t, Center for Open Science.
    14. Mayer, Jakob & Dugan, Anna & Bachner, Gabriel & Steininger, Karl W., 2021. "Is carbon pricing regressive? Insights from a recursive-dynamic CGE analysis with heterogeneous households for Austria," Energy Economics, Elsevier, vol. 104(C).
    15. Orsetta Causa & Mikkel Hermansen, 2018. "Income Redistribution Through Taxes and Transfers across OECD Countries," LIS Working papers 729, LIS Cross-National Data Center in Luxembourg.
    16. Christopher Wimer & Zachary Parolin & Anny Fenton & Liana Fox & Christopher Jencks, 2020. "The Direct Effect of Taxes and Transfers on Changes in the U.S. Income Distribution, 1967–2015," Demography, Springer;Population Association of America (PAA), vol. 57(5), pages 1833-1851, October.
    17. repec:spo:wpmain:info:hdl:2441/7o37b1vm588d3o8dohskubesai is not listed on IDEAS
    18. repec:hal:spmain:info:hdl:2441/7o37b1vm588d3o8dohskubesai is not listed on IDEAS
    19. Zabsonre Zacharia & Boukary Ouedraogo, 2023. "Influence of tax structures on income inequality in WAEMU countries [Influences des structures fiscales sur l'inégalité de revenus dans les pays de l'UEMOA]," Post-Print hal-04188709, HAL.
    20. Clément Carbonnier, 2024. "Property Tax Regressivity, the Case of Québec," Public Finance Review, , vol. 52(2), pages 155-181, March.
    21. Orsetta Causa & Mikkel Hermansen, 2017. "Income redistribution through taxes and transfers across OECD countries," OECD Economics Department Working Papers 1453, OECD Publishing.
    22. David Brady, 2022. "Income and Wealth as Salient Gradational Aspects of Stratification," LIS Working papers 845, LIS Cross-National Data Center in Luxembourg.
    23. Manuel Schechtl & Rourke L. O'Brien, 2022. "Fiscal Impoverishment in Rich Democracies," LIS Working papers 831, LIS Cross-National Data Center in Luxembourg.
    24. Koen Caminada & Kees Goudswaard & Chen Wang & Jinxian Wang, 2019. "Income Inequality and Fiscal Redistribution in 31 Countries After the Crisis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(1), pages 119-148, March.

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    More about this item

    Keywords

    Tax-transfer policies; Social-security contributions; Redistribution;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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