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Income Inequality, Government's Redistributive Preferences, and the Extent of Redistribution

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  • Hannu Tanninen
  • Matti Tuomala
  • Elina Tuominen

Abstract

We examine empirically the relation of factor-income inequality and government's redistributive preferences to the extent of redistribution. In the challenging task of measuring taste for redistribution, we utilize the inverse-optimum approach. Our income-inequality and redistribution variables are constructed from the Luxembourg Income Study database, and for our redistributive-preference measure we have collected data from various sources. In addition to traditional linear specifications we use flexible methods. We study 14 advanced countries for approximately four decades and find that factor-income inequality and government's redistributive preferences are associated with the extent of redistribution as suggested by the numerical results of the Mirrlees model.

Suggested Citation

  • Hannu Tanninen & Matti Tuomala & Elina Tuominen, 2021. "Income Inequality, Government's Redistributive Preferences, and the Extent of Redistribution," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 77(2), pages 172-196.
    • Handle: RePEc:mhr:finarc:urn:doi:10.1628/fa-2021-0007
    DOI: 10.1628/fa-2021-0007
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    More about this item

    Keywords

    income inequality; nonlinearity; preferences; redistribution;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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