Tax Policy and Income Inequality in the U.S., 1979-2007
60 Pages Posted: 23 Jan 2014
Date Written: December 16, 2013
Abstract
We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method allowing us to disentangle the policy effect from changing market incomes. Over the period 1979-2007, the cumulative policy effect aggravated 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. While Republican policymakers increased inequality especially at the top, Democrats increased the income share of the bottom 80%.
Keywords: Tax policy, Inequality, Redistribution, Partisan Politics, Political Economy
JEL Classification: H23, H31, H53, P16
Suggested Citation: Suggested Citation
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