Income Inequality and Redistribution in the Aftermath of the 2007-2008 Crisis: The US Case

National Tax Journal, Vol. 73, Issue 1

60 Pages Posted: 8 Oct 2015 Last revised: 20 Mar 2020

See all articles by Vanda Almeida

Vanda Almeida

European Commission - Joint Research Centre

Date Written: February 10, 2020

Abstract

This paper provides a detailed empirical assessment of the evolution of income inequality and the redistributive effects of the tax and transfer system following the 2007–2008 crisis. It focuses on the U.S. case, drawing on data from the Current Population Survey (CPS) for the period 2007–2012. In contrast with most existing studies, it uses a wide range of inequality indicators and looks in detail at several sections of the income distribution, allowing for a clearer picture of the heterogeneous consequences of the crisis. Furthermore, it analyzes the contribution of different components of the tax and transfer system, beyond its overall cushioning effect, which allows for a more refined assessment of its effectiveness. Results show that although the crisis implied income losses across the whole income distribution, the burden was disproportionately born by low- to middle-income groups. Income losses experienced by richer households were relatively modest and transitory, while those experienced by poorer households were not only strong but also highly persistent. The tax and transfer system, particularly cash transfers, had a crucial role in taming the increase in income inequality during the Great Recession (GR) and in the immediate aftermath of the crisis. After 2010, however, its effect became weaker and income inequality experienced a new surge. The findings of this paper contribute to a better understanding of the distributional consequences of aggregate crises and the role of tax and transfer policies in stabilizing the income distribution in a crisis aftermath.

Keywords: Crisis, Personal income distribution, Inequality, Redistribution, Safety net, Public transfers, Income tax, Inequality decomposition, Gini, Tax and transfer system

JEL Classification: D31, E32, H23, H24, I38

Suggested Citation

Almeida, Vanda, Income Inequality and Redistribution in the Aftermath of the 2007-2008 Crisis: The US Case (February 10, 2020). National Tax Journal, Vol. 73, Issue 1, Available at SSRN: https://ssrn.com/abstract=2670586 or http://dx.doi.org/10.2139/ssrn.2670586

Vanda Almeida (Contact Author)

European Commission - Joint Research Centre ( email )

Edificio Expo
Calle Inca Garcilaso, 3
Sevilla, Sevilla 41092
Spain

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
103
Abstract Views
600
rank
297,093
PlumX Metrics