Accounting for Income Changes Over the Great Recession (2007-2010) Relative to Previous Recessions: The Importance of Taxes and Transfers

42 Pages Posted: 10 Dec 2013 Last revised: 12 Dec 2013

See all articles by Jeff Larrimore

Jeff Larrimore

Board of Governors of the Federal Reserve System

Richard V. Burkhauser

Cornell University - Department of Policy Analysis & Management (PAM); University of Melbourne, Melbourne Institute

Philip Armour

Cornell University

Date Written: December 2013

Abstract

With data from the March CPS and using shift-share analysis, we analyze the factors that account for changes in post-tax post-transfer income during each of the past four recessions. What distinguishes the Great Recession is that drops in employment rather than wage earnings drove income declines. In addition, taxes and transfers played a much greater role in offsetting market income losses --a result largely missed in analyses that do not account for taxes and transfers. This is particularly so among the bottom quintile of the distribution where lower and increased transfers offset more than one-half of the market income declines.

Suggested Citation

Larrimore, Jeff and Burkhauser, Richard V. and Armour, Philip, Accounting for Income Changes Over the Great Recession (2007-2010) Relative to Previous Recessions: The Importance of Taxes and Transfers (December 2013). NBER Working Paper No. w19699, Available at SSRN: https://ssrn.com/abstract=2366013

Jeff Larrimore (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Richard V. Burkhauser

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States

University of Melbourne, Melbourne Institute ( email )

Level 5, FBE Building, 111 Barry Street
161 Barry Street
Carlton, VIC 3053
Australia

Philip Armour

Cornell University ( email )

No Address Available

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