The Impact of Redistributive Policies on Inequality in OECD Countries

34 Pages Posted: 28 Apr 2012

See all articles by Philipp Dörrenberg

Philipp Dörrenberg

University of Mannheim; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); ZEW – Leibniz Centre for European Economic Research

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research; University of Mannheim - School of Economics (VWL); IZA Institute of Labor Economics; University of Essex - Institute for Social and Economic Research (ISER)

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Abstract

Recent discussions about rising inequality in industrialized countries have triggered calls for more government intervention and redistribution. Due to obvious behavioral effects caused by redistribution, it is however not clear whether redistributional policies are indeed able to combat inequality. This paper contributes to this relevant research question by using different contextual country-level data sources to study inequality trends in OECD countries since the 1980s. We first investigate the development of inequality over time before analyzing the question of whether governments can effectively reduce inequality. Different identification strategies, using fixed effects and instrumental variables models, provide some evidence that governments are capable of reducing income inequality despite countervailing behavioral adjustments. The effect is stronger for social expenditure policies than for progressive taxation, which seems to trigger more inequality increasing indirect behavioral effects. Our results also suggest that the use of secondary inequality data should be handled with caution.

Keywords: inequality, redistribution, social expenditure, progressive taxation

JEL Classification: D31, D60, H20

Suggested Citation

Dörrenberg, Philipp and Peichl, Andreas, The Impact of Redistributive Policies on Inequality in OECD Countries. IZA Discussion Paper No. 6505, Available at SSRN: https://ssrn.com/abstract=2047291 or http://dx.doi.org/10.2139/ssrn.2047291

Philipp Dörrenberg (Contact Author)

University of Mannheim ( email )

L 7, 3-5
Mannheim, 68161
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Munich
Germany

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim - School of Economics (VWL) ( email )

Mannheim 68131
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

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