The Direct Effect of Taxes and Transfers on Changes in the U.S. Income Distribution, 1967–2015

Wimer, Christopher; Parolin, Zachary; Fenton, Anny; Fox, Liana; Jencks, Christopher

doi:10.1007/s13524-020-00903-6

Cited by 24 publications

(21 citation statements)

References 31 publications

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“…Within the latter stream, scholars have pointed out that taxation rules matter strongly for our understanding of inequality (Martin, Mehrotra, and Prasad 2009;Martin and Prasad 2014). As this work shows, taxes, overall, reduce income inequality (Wimer et al 2020;Bloch, Pisu, and Joumard 2013). However, if we leave the bird's eye view of overall inequality and zoom into parts of the income distribution, research within this stream has clearly shown that taxes may 2 increase inequality within parts of the distribution.…”

Section: Introductionmentioning

confidence: 86%

Payroll-exempt labor incomes increase inequality at the top

Haupt¹,

Nollmann²

2021

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In recent decades, inequality of household income has increased globally. A common trend is increased income inequality at the top of the distribution. The sources of this trend are a matter of debate. Increased demand for analytical and managerial skills is said to have strongly increased labor incomes at the top. Other scholars have indicated that structural conditions, such as financialization or favorable taxation, have benefited top-earning households. Here, we contribute to the latter line of reasoning. We show that payroll taxation reinforces income inequality at the top. Such taxation has large fiscal volume and redistributive power. However, our knowledge about the distributional consequences of payroll taxation as a tax scheme is remarkably thin. We claim that payroll taxes are central to understanding income inequality. Many countries, such as Germany and the US, restrict payroll taxes to a maximum amount, resulting in significant payroll tax-exempted incomes for high-earning households. Strongly growing top-labor incomes thus lead to increased payroll tax-exempted incomes for households at the upper parts of the distribution and, consequently, to higher income dispersion. We use Germany (1992–2017), a highly redistributive country, as a case study. Our empirical results suggest that: a) households increasingly profit from payroll-exempted labor incomes across the upper quarter; b) this benefit has increased over time; and c) increased amounts of payroll tax-exempted labor income explain up to 60% of income dispersion at the top of the distribution. We discuss the generalizability of our case study for other countries.

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Section: Introductionmentioning

confidence: 86%

Payroll-exempt labor incomes increase inequality at the top

Haupt¹,

Nollmann²

2021

Preprint

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“…That homelessness and poverty go hand in hand may be intuitive to the reader, but it is worth elaborating on the relationship. Decades of poverty research have demonstrated that more generous and accessible income transfers to low-income households are an effective way to reduce poverty and promote better health and learning outcomes (Wimer et al 2020(Wimer et al , 2016McLaughlin and Rank 2018;Almond, Hoynes, and Schanzenbach 2008). Might it be the case then that more accessible income transfers also reduce levels of homelessness?…”

Section: Associations With Income Support Policiesmentioning

confidence: 99%

Income Support Policies and the Rise of Student and Family Homelessness

Parolin¹

2021

The ANNALS of the American Academy of Political and Social Scie

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This study investigates whether the generosity and accessibility of publicly provided income support contributes to levels of family homelessness. Using data on student homelessness from most public school districts in the United States, I find that greater access to cash assistance from the Temporary Assistance for Needy Families (TANF) program reduces levels of family homelessness and that the reduction is particularly strong for majority–Black and Native American school districts. The results suggest that the observed decline in access to TANF cash assistance may be an important driver of the rise in family homelessness. Evidence is inconclusive about whether greater access to the Supplemental Nutrition Assistance Program (SNAP) or greater generosity of the Earned Income Tax Credit (EITC) reduces levels of homelessness.

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“…4 More generous income transfers, whether through enhancements in benefit levels or coverage, are likely to have favorable effects on income growth toward the bottom of the income distribution (Atkinson 2015, Brady, Blome and Kleider 2016, Brady 2019, Förster and Vleminckx 2004, Gornick and Jäntti 2016. In the U.S. case, for example, Wimer et al (2020) find that increases in the generosity of income support programs are largely responsible for the income growth of the bottom decile of the U.S. income distribution from 1967 to 2015. Similarly, higher tax rates on higher-income households are effective at reducing top incomes and achieving more equitable growth (Atkinson, Piketty and Saez 2011).…”

Section: Sociological Perspectives On Changes In Inequalitymentioning

confidence: 99%

“…In countries such as Denmark and Canada, in contrast, top marginal tax rates have declined. Countries have generally seen increases in spending on transfers, though in part due to compositional changes and with transfers targeted at different points across the distribution (Wimer et al 2020).…”

Section: Sociological Perspectives On Changes In Inequalitymentioning

confidence: 99%

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

Parolin

Gornick

2021

Am Sociol Rev

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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.

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The Direct Effect of Taxes and Transfers on Changes in the U.S. Income Distribution, 1967–2015

Cited by 24 publications

References 31 publications

Payroll-exempt labor incomes increase inequality at the top

Payroll-exempt labor incomes increase inequality at the top

Income Support Policies and the Rise of Student and Family Homelessness

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

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