Who Enjoys the Fruits of Growth? Impact of Governments and Markets on Living Standards in Germany, the Netherlands and the U.S.A., 1987–1996

Social Indicators Research, Vol. 65, pp. 125-144, 2004

20 Pages Posted: 19 Jan 2012

See all articles by Bruce Headey

Bruce Headey

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Ruud Muffels

Tilburg University

Carla Janssen

affiliation not provided to SSRN

Date Written: December 19, 2002

Abstract

The 1980s and 1990s have been decades of quite good economic growth in North America and much of Western Europe. But how have the fruits of growth been shared? This paper reviews changing income distributions in the U.S., Germany and the Netherlands. These three countries may be taken as exemplars and leading economic performers in “the three worlds of welfare capitalism” (Esping-Andersen, 1990). The U.S. is a liberal welfare-capitalist state, Germany a corporatist state, and the Netherlands (less clearly) a social democratic welfare-capitalist state.

The paper focuses particularly on income changes in the bottom, middle and top quintiles and takes a ten year period into account. Previous analyses have shown that labor and market income dispersion are increasing, with increased returns to human capital. The potential impact of government through the tax-transfer system has been largely ignored. All three governments redistribute income from the rich to the poor. However, the paper shows that only the Dutch government has redistributed sufficiently to ensure that the bottom quintile has gained along with others. In Germany and the U.S. the poorest quintile was considerably worse off in absolute terms at the end of the decade, than the beginning. The German government somewhat counteracted the trend towards greater income dispersion by redistributing to the poorest quintile, so the loss of market income was partly compensated. In the U.S. the impact of government on the poorest quintile stayed about the same, so this group ended up with about the same decrease in disposable income as market income. The U.S., Germany and the Netherlands are the only three countries for which ten or more consecutive years of panel data are available. The data come from the PSID-GSOEP Equivalent File 1980-97 and from a comparable file constructed from the Dutch SEP data.

Suggested Citation

Headey, Bruce and Muffels, Ruud and Janssen, Carla, Who Enjoys the Fruits of Growth? Impact of Governments and Markets on Living Standards in Germany, the Netherlands and the U.S.A., 1987–1996 (December 19, 2002). Social Indicators Research, Vol. 65, pp. 125-144, 2004, Available at SSRN: https://ssrn.com/abstract=1988227

Bruce Headey (Contact Author)

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

Ruud Muffels

Tilburg University ( email )

Postbus 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands
0031134662795 (Phone)
0031134663003 (Fax)

HOME PAGE: http://www.uvt.nl/

Carla Janssen

affiliation not provided to SSRN

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