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Tax Policy and Income Inequality in the U.S., 1978-2009: A Decomposition Approach


Olivier Bargain


Institute for the Study of Labor (IZA); University College Dublin (UCD)

Mathias Dolls


University of Cologne - Faculty of Management, Economics and Social Sciences; IZA

Herwig Immervoll


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

Dirk Neumann


University of Cologne

Andreas Peichl


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)

Nico Pestel


Institute for the Study of Labor (IZA)

Sebastian Siegloch


Institute for the Study of Labor (IZA); University of Cologne - Department of Economics

IZA Discussion Paper No. 5910

Abstract:     
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, P16

working papers series


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Date posted: August 22, 2011  

Suggested Citation

Bargain, Olivier, Dolls, Mathias, Immervoll, Herwig, Neumann, Dirk, Peichl, Andreas, Pestel, Nico and Siegloch, Sebastian, Tax Policy and Income Inequality in the U.S., 1978-2009: A Decomposition Approach. IZA Discussion Paper No. 5910. Available at SSRN: http://ssrn.com/abstract=1913617

Contact Information

Olivier Bargain (Contact Author)
Institute for the Study of Labor (IZA) ( email )
P.O. Box 7240
Bonn, D-53072
Germany
University College Dublin (UCD) ( email )
Belfield, Dublin 4 4
Ireland
+353 1 716 8357 (Phone)
+353 1 283 0068 (Fax)
HOME PAGE: http://www.ucd.ie/economics/staff/obargain/obargain.htm
Mathias Dolls
University of Cologne - Faculty of Management, Economics and Social Sciences ( email )
Richard-Strauss-Str. 2
Cologne, D-50923
Germany
IZA
P.O. Box 7240
Bonn, D-53072
Germany
HOME PAGE: http://www.iza.org/
Herwig Immervoll
World Bank, Europe and Central Asia ( email )
1818 H Street, N.W.
Washington, DC 20433
United States
Organization for Economic Co-Operation and Development (OECD) - Social Policy Division ( email )
2 rue Andre Pascal
Paris Cedex 16, 75775
France
(33 1) 45 24 92 14 (Phone)
(33 1) 44 30 61 78 (Fax)
HOME PAGE: http://www.oecd.org/els/social
Institute for the Study of Labor (IZA) ( email )
P.O. Box 7240
Bonn, D-53072
Germany
HOME PAGE: http://www.iza.org/profile?key=1935

ISER Institute for Social and Economic Research ( email )
Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
HOME PAGE: http://www.iser.essex.ac.uk/people/research-associates
University of Canberra - National Centre for Social and Economic Modelling (NATSEM) ( email )
Canberra, ACT 2601
AUSTRALIA
HOME PAGE: http://www.canberra.edu.au/centres/natsem/people/associates/herwig-immervoll
United Nations - European Centre for Social Welfare Policy and Research ( email )
Berggasse 17
Vienna, A1010
Austria
HOME PAGE: http://www.euro.centre.org
Dirk Neumann
University of Cologne ( email )
Albertus-Magnus-Platz
Cologne, 50923
Germany
Andreas Peichl
Institute for the Study of Labor (IZA) ( email )
P.O. Box 7240
Bonn, D-53072
Germany
University of Cologne - Cologne Centre for Public Economics (CPE) ( email )
Albertus-Magnus-Platz
Lehrstuhl Prof. Dr. C. Fuest
Cologne, 50923
Germany
+49 (0) 221 470 2358 (Phone)
+49 (0) 221 470 5060 (Fax)
HOME PAGE: http://www.cpe-cologne.de
University of Essex - Institute for Social and Economic Research (ISER)
Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
Nico Pestel
Institute for the Study of Labor (IZA) ( email )
P.O. Box 7240
Bonn, D-53072
Germany
Sebastian Siegloch
Institute for the Study of Labor (IZA) ( email )
P.O. Box 7240
Bonn, D-53072
Germany
University of Cologne - Department of Economics ( email )
Cologne, 50923
Germany
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