Tax Policy and Income Inequality in the U.S., 1978-2009: A Decomposition Approach
Institute for the Study of Labor (IZA); University College Dublin (UCD)
University of Cologne - Faculty of Management, Economics and Social Sciences; IZA
World Bank, Europe and Central Asia; Organization for Economic Co-Operation and Development (OECD) - Social Policy Division; Institute for the Study of Labor (IZA); ISER Institute for Social and Economic Research; University of Canberra - National Centre for Social and Economic Modelling (NATSEM); United Nations - European Centre for Social Welfare Policy and Research
University of Cologne
Institute for the Study of Labor (IZA); University of Cologne - Cologne Centre for Public Economics (CPE); University of Essex - Institute for Social and Economic Research (ISER)
Institute for the Study of Labor (IZA)
Institute for the Study of Labor (IZA); University of Cologne - Department of Economics
IZA Discussion Paper No. 5910
We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method that allows us to disentangle mechanical effects due to changes in pre-tax incomes from direct effects of policy reforms. While tax reforms implemented under Democrat administrations, in particular the EITC reforms in the 1990s and the ARRA in 2009, had an equalizing effect at the lower half of the distribution, the disequalizing effects of Republican reforms are due to tax cuts for high-income families. As a consequence of partisan politics, overall policy effects almost cancel out over the whole time period.
Number of Pages in PDF File: 48
Keywords: tax policy, inequality, redistribution, political economy, Great Recession
JEL Classification: H23, H31, H53, P16working papers series
Date posted: August 22, 2011
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