The Redistributive Effect of Social Transfer Programmes and Taxes: A Decomposition Across Countries

Abstract

The aim of this article is to offer detailed information of the redistributive impact of social transfer programmes and taxes in 28 Member countries of the Organisation for Economic Co‐operation and Development, employing data that have been computed from the Luxembourg Income Study's micro‐level database. We find that welfare states on average reduce inequality by 35 per cent. Social benefits have a much stronger redistributive impact than taxes. As far as social programmes are concerned, public pensions account for the largest reduction in income inequality, although the pattern is diverse across countries. To a lesser extent, social assistance, disability and family benefits also contribute to smaller income disparities.

Keywords: income redistribution, benefit, taxation, welfare state, OECD