The Distributional Consequences of Government Spending and Taxation in the U.S., 1989 and 2000

Wolff, Edward N.; Zacharias, Ajit

doi:10.1111/j.1475-4991.2007.00251.x

Cited by 56 publications

(44 citation statements)

References 19 publications

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“…Wolff and Zacharias (2007) emphasize that net government spending reduces income inequality in a considerable manner and the effect is owed more to expenditures than to taxes. Bertola (2010) argues that Europe's Economic and Monetary Union (EMU) had a small (althout significantly positive) impact on income inequality, partially reflecting the implementation of less generous social policies.…”

Section: Review Of Literaturementioning

confidence: 99%

How Does Fiscal Consolidation Impact on Income Inequality?

Agnello

Sousa

2012

SSRN Journal

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The authors wish to thank Prof. Sushanta Mallick and to participants to a seminar at the Banque De France for helpful comments. The opinions expressed herein are those of the authors and do not necessarily reflect those of the Banque de France. AbstractIn this paper, we assess the impact of fiscal consolidation on income inequality. Using a panel of 18 industrialized countries from 1978 to 2009, we find that income inequality significantly rises during periods of fiscal consolidation. In addition, while fiscal policy that is driven by spending cuts seems to be detrimental for income distribution, tax hikes seem to have an equalizing effect. We also show that the size of the fiscal consolidation program (in percentage of GDP) has an impact on income inequality. In particular, when consolidation plans represent a small share of GDP, the income gap widens, suggesting that the burden associated with the effort affects disproportionately households at the bottom of the income distribution. Considering the linkages between banking crises and fiscal consolidation, we find that the effect on the income gap is amplified when fiscal adjustments take place after the resolution of such financial turmoils. Similarly, fiscal consolidation programs combined with inflation are likely to increase inequality and the effects of fiscal adjustments on inequality are amplified during periods of relatively low growth. Our results also provide support for a nonlinear relationship between inequality and income and corroborate the idea that trade can promote a more equal distribution of income.Keywords: Fiscal consolidation, income inequality, Kuznets curve. JEL: E62, E64, D63. RésuméDans cet article, nous évaluons l'impact de la consolidation budgétaire sur l'inégalité des revenus. Utilisant un panel de 18 pays industrialisés de 1978 à 2009, nous constatons que l'inégalité des revenus augmente de façon significative pendant les périodes de consolidation budgétaire. En outre, alors qu'une consolidation axée sur la réduction des dépenses semble être préjudiciable pour la distribution des revenus, des hausses d'impôts semblent avoir un effet égalisateur. Nous montrons aussi que la taille du programme de consolidation budgétaire (en pourcentage du PIB) a un impact sur l'inégalité des revenus. En particulier, lorsque les plans de consolidation ne représentent qu'une faible part du PIB, l'écart de revenu se creuse, ce qui suggère que le fardeau associé à l'effort affecte de manière disproportionnée les ménages au bas de la distribution des revenus. Considérant les liens entre crises bancaires et l'assainissement budgétaire, nous constatons que l'effet sur l'écart de revenu est amplifié lorsque des ajustements budgétaires ont lieu après la résolution de ces tourmentes financières. De même, les programmes d'assainissement budgétaire accompagnés d'inflation forte sont susceptibles d'accroître les inégalités et les effets des ajustements budgétaires sur l'inégalité sont amplifiés durant les périodes de croissance relativement faible. Nos résulta...

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Section: Review Of Literaturementioning

confidence: 99%

How Does Fiscal Consolidation Impact on Income Inequality?

Agnello

Sousa

2012

SSRN Journal

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“…Especially for lower quantiles, average expenditure always seems to lie much higher than average income. This is not only true for the five countries observed here, as indicated by the unbelievably low savings rate for all countries in the first decile in Table 11, but also for the U.S. (Wolff & Zacharias, 2007). Sabelhaus (1993) measured savings alternatively as the difference between the change in assets and the change in liabilities and found that this method, although theoretically equivalent to income minus expenditures, yields very different results.…”

Section: Disposable Income or Expenditures?mentioning

confidence: 73%

How regressive are indirect taxes? A microsimulation analysis for five European countries

Decoster

Loughrey

O’Donoghue

et al. 2010

J Policy Anal Manage

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Shifting the tax burden from labor to consumption is proposed in many developed INTRODUCTIONIndirect taxation forms part of a mix of different tax and revenue-raising instruments including taxes on income, property, and social security levies on employment income that households and other economic agents face. As Table 1 illustrates for the OECD, indirect or consumption taxation is a substantial component in the tax system of most industrialized countries. Despite a decline in relative importance mainly taking place during the '70s, the total share of government revenue raised via consumption seems to have stabilized at around 30 percent, 1 which still is substantially more than, for instance, the income tax. Note that this stabilization since 1980 hides two distinct evolutions partly offsetting one another: the implosion of taxes on special goods and services (excise taxes 2 ) from 1960 onward and the rise of taxes on general consumption (mainly VAT and sales taxes) in the same period. Lacking an adequate political economy model of tax system formation, it is difficult to give a conclusive interpretation of these opposite evolutions. Theoretically there are (productive efficiency) arguments contra and (externality) We only consider relative trends in this paper. In absolute terms there is evidence of a correlation between the share of tax raised by VAT and the overall tax burden in a country (Keen & Lockwood, 2006). 2 It should be noted that import duties also belong to this category, suggesting that the promotion of free trade might be responsible for the decreasing influence of this revenue type. Detailed figures, such as in OECD (2008a), show nevertheless that (1) the share of import duties is too small to provoke an effect of this magnitude and that (2) for the more restricted category of excise duties without import duties the evolution is analogous.

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“…They reported that the effect of cash transfers was three times greater than the effect of tax incidence 10 in reducing the level of dispersion between market income and disposable income (OECD 2012a andJoumard, Pisu, andBloch 2012). Earlier studies by Wolff and Zacharias (2007) on the effects of US government expenditures and taxation on household incomes from 1989 to 2000 reached a similar conclusion-compared with taxes, expenditures yielded greater inequality-reducing results. Among transfers, the progressivity of housing benefits was substantial, but its redistributive impact was inadequate due to limited magnitude (OECD 2012a, OECD 2012b, and OECD 2012c.…”

Section: Public Cash Transfers and Benefitsmentioning

confidence: 89%

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

2014

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Advanced economies have a significantly longer history of using fiscal policy to tackle inequality and promote inclusive growth than those in developing Asia. Therefore, as developing Asia explores the more active use of fiscal policy for inclusive purposes, it can learn from the experiences of advanced countries. Those experiences clearly suggest that fiscal policy can have a significant effect on inequality which provides some cause for optimism about its equity-promoting potential. Nevertheless, that optimism should be tempered by the different circumstances of advanced versus developing economies along with the need for developing Asia to maintain fiscal sustainability and economic growth. Required Publisher's StatementThis article was first published by the Asian Development Bank (www.adb.org). The views expressed in this paper are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent.ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.By making any designation of or reference to a particular territory or geographic area, or by using the term "country" in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. Notes:In this publication, "$" refers to US dollars.The ADB Economics Working Paper Series is a forum for stimulating discussion and eliciting feedback on ongoing and recently completed research and policy studies undertaken by the Asian Development Bank (ADB) staff, consultants, or resource persons. The series deals with key economic and development problems, particularly those facing the Asia and Pacific region; as well as conceptual, analytical, or methodological issues relating to project/program economic analysis, and statistical data and measurement. The series aims to enhance the knowledge on Asia's development and policy challenges; strengthen analytical rigor and quality of ADB's country partnership strategies, and its subregional and country operations; and improve the quality and availability of statistical data and development indicators for monitoring development effectiveness.

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The Distributional Consequences of Government Spending and Taxation in the U.S., 1989 and 2000

Cited by 56 publications

References 19 publications

How Does Fiscal Consolidation Impact on Income Inequality?

How Does Fiscal Consolidation Impact on Income Inequality?

How regressive are indirect taxes? A microsimulation analysis for five European countries

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

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