Inequality and Poverty in the United States

Abstract

Inequality and poverty in the United States: public policies for inclusive growth Income inequality and relative poverty in the United States are among the highest in the OECD and have substantially increased over the past decades. These developments have been associated with a number of other worrying statistics, including low intergenerational social mobility and weak real income growth for many households. A more inclusive pattern of growth would require less pronounced gaps in outcomes and opportunities across social groups and a broader sharing of the benefits of growth. The present paper analyses the causes of US income inequality and relative poverty in an OECD context, especially the role of the tax-and-transfer system, and suggests public policies to promote inclusive growth. To a significant degree, high income inequality is attributable to the large dispersion of earned income, which should be addressed by reforming education, so as to provide disadvantaged students with the skills needed to fully realise their potential. In addition, taxes and transfers contribute less to income redistribution than in other OECD countries. If well designed, reforms that promote inclusive growth could also help reduce the market distortions resulting from the current tax-and-transfer system. In particular, phasing out personal and corporate tax expenditures that disproportionately benefit high earners would lower income inequality and improve resource allocation. As well, social transfers could be more effective in alleviating poverty through better targeting of the truly needy while reducing administrative complexity.

Fiscal Policy and Inclusive Growth in Advanced Countries: Their Experience and Implications for Asia

“…All other things equal, the redistribution impact of public cash transfers was double the tax effect in most OECD members, except for the US 7 where taxes are more redistributive than transfers (Bastagli, Coady, and Gupta 2012, Denk et al 2013, and Krueger 2012. The major tool for public expenditures for redistribution purposes is non-means-tested transfers, 8 especially in the Nordic economies and in Austria, Belgium, Poland, and Hungary.…”