Pathways toward Inclusive Income Growth: A Comparative Decomposition of National Growth Profiles

Abstract

Despite rising interest in income inequality, scholars remain divided over the mechanisms underlying inclusive income growth and how these mechanisms vary across countries. This study introduces the concept of national growth profiles, that is, the additive contribution of changes in taxes, transfers, composition, and other factors including market institutions to changes across a country’s income distribution. We present a decomposition framework to measure national growth profiles for eight high-income countries from the 1980s to 2010s. Our findings adjudicate competing sociological and economic perspectives on rising inequality. First, we find that policy-driven changes in taxes and transfers are the dominant drivers of inclusive growth at the tails of the income distributions. Second, rising educational attainment contributes most to income growth across the distribution, but consistently contributes to less-inclusive growth. When changes in education are considered, changes in assortative mating and single parenthood have little consequence for changes in inequality. Third, changes to other factors including market institutions increased inequality in countries such as the United States, but less so in France and Germany. Had the United States matched the changes to Dutch tax policy, Danish transfer policy, or other factors of most other countries, it could have achieved more inclusive income growth than observed.

Inequality Below the Poverty Line since 1967: The Role of the U.S. Welfare State

“…Diverging from the standard approach of evaluating the effect of taxes and transfers, we apply a decomposition framework, closely following Parolin and Gornick (2021), that allows us to explicitly separate the influence of composition effects (the changes in the share of people unemployed, in the example above) from the influence of policy effects (the changes in the policy rules) in shaping changes in the P15/P5 ratio. Formally, our decomposition framework is defined as follows in Equation 1: represents the change in P15/P5 ratio for a given year (t) relative to our baseline year (1967) when applying a post-tax/transfer income definition (post).…”

“…Measuring the contribution of transfers to a specific income percentile requires a decision of whether to treat the percentiles as fixed (anonymized) or unfixed (non-anonymized) (Parolin and Gornick 2021). The fixed treatment, which we apply in our primary analyses, holds the underlying income distribution stable based on our pre-tax, pre-transfer measure of earnings and investment income.…”

Renewable energy technology innovation and inclusive low-carbon development from the perspective of spatiotemporal consistency

“…Many scholars have found that it can promote inclusive growth by taking some measures such as expanding fiscal redistribution, improving female access to education, enhancing trade openness and frugal entrepreneurship, expanding government size and promoting infrastructure development and ICT-trade nexus (Aoyagi and Ganelli 2015 ; Hong et al 2019 ; Whajah et al 2019 ; Mutiiria et al 2020 ; Adeleye et al 2021 ; Hossain and Sarkar 2021 ; Kang and Martinez-Vazquez 2021 ). And human capital, taxes and transfer payments indirectly affect inclusive growth (Oyinlola et al 2021 ; Parolin and Gornick 2021 ). However, a few studies have found that deviations in environmental regulation intensity, industrial robot use, and tourism growth inhibit inclusive growth (Hampton et al 2018 ; Ge and Li 2020 ; Fu et al 2021 ).…”

Poverty Reduction through Federal and State Policy Mechanisms: Variation Over Time and Across the U.S. States

“…Conceptually, both taxes and transfers are government interventions aimed at reshaping marketincome distributions, and, in the end, arguably, their effects on households' disposable income are experienced together. However, government transfers and taxes represent distinct policy tools that each impact household income in different ways as documented in recent studies of poverty and inequality reduction in the U.S. as well as in cross-national comparative research (see, e.g., Organization of Economic Cooperation and Development 2008;Gornick and Smeeding 2018;Caminada et al, 2019;Guillaud et al 2020;Parolin and Gornick 2021). There has also been increasing attention to the unique role of taxes in relation to povertyboth in terms of poverty alleviation through progressive taxation systems and income-targeted tax credits, and in terms of fiscal impoverishment whereby the payment of taxes push households into poverty by reducing their income (Martin and Prasad 2014;Kleiman 2021;Schechtl and O'Brien 2022).…”