Partisan Tax Policy and Income Inequality in the U.S., 1979-2007

57 Pages Posted: 2 Feb 2013

See all articles by Olivier Bargain

Olivier Bargain

IZA Institute of Labor Economics; University College Dublin (UCD)

Mathias Dolls

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute; IZA Institute of Labor Economics

Herwig Immervoll

World Bank, Europe and Central Asia; Organization for Economic Co-Operation and Development (OECD) - Social Policy Division; IZA Institute of Labor Economics; 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

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)

Nico Pestel

IZA Institute of Labor Economics

Abstract

We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method that allows us to disentangle the direct policy effect from the effect of changing market incomes. Over the whole period 1979-2007 the cumulative tax policy effect aggravated income inequality by increasing the income share of the top 20% in contrast to the middle class' share. The tax policy effect accounts for up to 29% of the total change in inequality; its contribution increases up to 41% if we take into account behavioral responses.Using our unique policy effect measure and variation in tax policies across U.S. states and time, we also identify the redistributive intention of policymakers. The estimated effect of partisan politics on the U.S. income distribution is statistically significant and economically important. Republican policymakers increased inequality especially at the top whereas Democrats increased the income share of the bottom 80% of the distribution.

Keywords: tax policy, inequality, redistribution, partisan politics, political economy

JEL Classification: H23, H31, H53, P16

Suggested Citation

Bargain, Olivier and Dolls, Mathias and Immervoll, Herwig and Neumann, Dirk and Peichl, Andreas and Pestel, Nico, Partisan Tax Policy and Income Inequality in the U.S., 1979-2007. IZA Discussion Paper No. 7190. Available at SSRN: https://ssrn.com/abstract=2210850

Olivier Bargain (Contact Author)

IZA Institute of Labor Economics ( 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

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

Poschinger Str. 5
Munich, 01069
Germany

HOME PAGE: http://www.cesifo-group.de/ifoHome/CESifo-Group/ifo/ifo-Mitarbeiter/cvifo-dolls_m.html

IZA Institute of Labor Economics ( email )

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

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

IZA Institute of Labor Economics ( 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

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

Nico Pestel

IZA Institute of Labor Economics ( email )

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

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