Has the redistributive effect of social transfers and taxes changed over time across countries?

Abstract

In most Member countries of the Organisation for Economic Co‐operation Development (OECD), the income gap between rich and poor has widened over the past decades. This article analyses whether and to what extent income taxes and social transfers have contributed to this trend. Has the redistributive impact of different social programmes changed over time? We use microdata from the LIS Cross National Data Center in Luxembourg for the period 1982–2014 and study both the total population and the working‐age population. In contrast to the results of some other studies, especially by the OECD, we do not find that redistribution has declined. Tax‐benefit systems around 2013 are more effective at reducing income inequality compared to the mid‐1980s and the mid‐1990s, especially among the total population. Changes in social programmes are not a driver of greater income inequality across the countries included in this study.

The relationship between different social expenditure schemes and poverty, inequality and economic growth

“…We expect social expenditure to reduce poverty and inequality (Kenworthy, 1999; Caminada and Goudswaard, 2009; Adema, Fron and Ladaique, 2014; ILO, 2014; Wang, Caminada and Goudswaard, 2014). Wang, Caminada and Goudswaard (2012) and Caminada et al (2019) find that public pensions account for the largest reduction in income inequality, but also that social assistance, disability benefits, family benefits and unemployment benefits are negatively associated with income inequality. Wang, Caminada and Goudswaard (2012), Wang, Caminada and Goudswaard (2014) and Caminada et al (2019) study redistribution by taking the difference between market income and disposable income, which is a useful accounting exercise.…”

“…Wang, Caminada and Goudswaard (2012) and Caminada et al (2019) find that public pensions account for the largest reduction in income inequality, but also that social assistance, disability benefits, family benefits and unemployment benefits are negatively associated with income inequality. Wang, Caminada and Goudswaard (2012), Wang, Caminada and Goudswaard (2014) and Caminada et al (2019) study redistribution by taking the difference between market income and disposable income, which is a useful accounting exercise. Our approach is to run regression models in which we study the relationship between social expenditure and final values of the poverty rate and the Gini coefficient.…”

Antipoverty Effects of Various Social Transfers and Income Taxes Across Countries

“…In welfare states social income transfers and income taxes redistribute income from rich to poor, but there is vast empirical evidence that social benefits have larger redistributive effects than income taxes in most countries (Caminada et al, 2019a and2019b;Jesuit and Mahler, 2017). When evaluating the redistributive power of various social transfers, important factors to consider are the program design and the scale and scope of social transfer schemes (Barr, 1992;Goudswaard and Caminada, 2010).…”

“…They apply their empirical exercise for 13 countries with LISdata around the years 1999/2000. Caminada et al (2019a and2019b) updated and extend the analyses of Mahler and Jesuit (2006) by taking into account more benefits and taxes and a wider range of countries with LIS data up-to around 2014. They conclude that on average transfers account for 76 percent of redistribution, while direct taxes account for 24 percent.…”

“…Nonetheless, the budget incidence approach is -still -a standard methodology for studying the combined effects of all taxes and transfers on poverty and inequality. Some recent studies have examined the role of income transfers and taxes in reducing income inequality, using this methodology (OECD, 2015;Jesuit and Mahler, 2017and Caminada et al, 2019aand 2019b). 2 In this paper, we undertake a detailed simulation approach which allows us to decompose (the change in) relative income poverty through income taxes and several social transfers.…”