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Income Redistribution through Taxes and Transfers across OECD Countries

Inequality, Redistribution and Mobility

ISBN: 978-1-80043-040-2, eISBN: 978-1-80043-039-6

Publication date: 26 November 2020

Abstract

This paper produces a comprehensive assessment of income redistribution to the working-age population, covering OECD countries over the last two decades. Redistribution is quantified as the relative reduction in market income inequality achieved by personal income taxes (PIT), employees’ social security contributions, and cash transfers, based on household-level micro-data. A detailed decomposition analysis uncovers the respective roles of size, tax progressivity, and transfer targeting for overall redistribution, the respective role of various categories of transfers for transfer redistribution; as well as redistribution for various income groups. The paper shows a widespread decline in redistribution across the OECD, both on average and in the majority of countries for which data going back to the mid-1990s are available. This was primarily associated with a decline in cash transfer redistribution while PIT played a less important and more heterogeneous role across countries. In turn, the decline in the redistributive effect of cash transfers reflected a decline in their size and in particular by less redistributive insurance transfers. In some countries, this was mitigated by more redistributive assistance transfers but the resulting increase in the targeting of total transfers was not sufficient to prevent transfer redistribution from declining.

Keywords

Acknowledgements

Acknowledgements

The authors are members of the Economics Department of the OECD. They would like to thank colleagues Michael Förster, Herwig Immervoll, and Horacio Levy from the OECD Employment, Labour and Social Affairs directorate for close collaboration and valuable discussions on this paper. They would also like to thank OECD Economics Department colleagues Sebastian Barnes, Boris Cournède, Alain de Serres, Catherine L. Mann, Jon Pareliussen, participants in the Working Party No. 1 of the Economic Policy Committee, participants in the Employment, Labour and Social Affairs Committee and Peter H. Lindert for useful comments and suggestions. They are grateful to Martino Comelli for research assistance.

Citation

Causa, O. and Hermansen, M. (2020), "Income Redistribution through Taxes and Transfers across OECD Countries", Rodríguez, J.G. and Bishop, J.A. (Ed.) Inequality, Redistribution and Mobility (Research on Economic Inequality, Vol. 28), Emerald Publishing Limited, Leeds, pp. 29-74. https://doi.org/10.1108/S1049-258520200000028002

Publisher

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Emerald Publishing Limited

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