Four levers of redistribution: The impact of tax and transfer systems on inequality reduction

Elvire Guillaud (1, 2) , Matthew Olckers (3, 4) , Michaël Zemmour (5, 2)

1 CES - Centre d'économie de la Sorbonne
2 LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques (Sciences Po)
3 PSE - Paris School of Economics
4 UP1 UFR02 - Université Paris 1 Panthéon-Sorbonne - École d'économie de la Sorbonne
5 CLERSÉ - Centre Lillois d’Études et de Recherches Sociologiques et Économiques - UMR 8019

Using observational micro data from the Luxembourg Income Study (LIS) we assess the redistributive impact of tax and transfer cofigurations across 22 OECD countries for the period 1999-2013. After imputing missing tax data (employer social security contributions), we measure the reduction of income inequality due to four key levers of tax and transfer systems: the average tax rate, tax progressivity, the average transfer rate, and transfer targeting. Our methodological improvements provide the following results: First, tax redistribution dominates transfer redistribution (excluding pensions) in most countries. Second, targeting explains very little of the cross-country variation in inequality reduction. In contrast, both progressivity of taxes and the average tax rate have large impacts on redistribution. Third, we observe the trace of political trade-offs. High average tax rates do not appear in conjunction with highly progressive tax systems.

Mots clés: tax-benefit policies; social security contributions; inequality reduction

Domaines: Economies et finances

Elvire Guillaud, Matthew Olckers, Michaël Zemmour. Four levers of redistribution: The impact of tax and transfer systems on inequality reduction: LIS working papers series - No. 695. 2017. ⟨hal-02735326⟩