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The Contribution of US Taxes and Social Transfers to Income Redistribution

Author

Listed:
  • Luis A. Hierro
  • Rosario Gómez-Alvarez
  • Pedro Atienza

Abstract

The aim of this work is to solve the problem of nonadditivity revealed by work that calculates the redistributive effects of the budget or public policies made up of different instruments of income or public spending. To do this, the authors use the Shapley value. This technique allows us to consistently, symmetrically, and directly decompose the redistributive effect and the vertical and horizontal effects. This method is consistent because the total effects can be explained by the sum of the individual contributions; it is symmetrical because it does not depend on the aggregation ranking of the instruments; and it is direct because each index can be calculated without the need to calculate the rest. The main result obtained for the case of taxes and social transfers in the United States is that previous calculations undervalued the redistributive effects and their vertical and horizontal components for taxes and transfers. Undervaluation is more important for taxes.

Suggested Citation

  • Luis A. Hierro & Rosario Gómez-Alvarez & Pedro Atienza, 2012. "The Contribution of US Taxes and Social Transfers to Income Redistribution," Public Finance Review, , vol. 40(3), pages 381-400, May.
    • Handle: RePEc:sae:pubfin:v:40:y:2012:i:3:p:381-400
    DOI: 10.1177/1091142111433461
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    References listed on IDEAS

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    1. Herwig Immervoll & Horacio Levy & Christine Lietz & Daniela Mantovani & Cathal O’Donoghue & Holly Sutherland & Gerlinde Verbist, 2006. "Household Incomes and Redistribution in the European Union: Quantifying the Equalizing Properties of Taxes and Benefits," Palgrave Macmillan Books, in: Dimitri B. Papadimitriou (ed.), The Distributional Effects of Government Spending and Taxation, chapter 5, pages 135-165, Palgrave Macmillan.
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    3. Lerman, Robert I. & Yitzhaki, Shlomo, 1995. "Changing Ranks and the Inequality Impacts of Taxes and Transfers," National Tax Journal, National Tax Association, vol. 48(1), pages 45-59, March.
    4. Ivica Urban & Peter J. Lambert, 2008. "Redistribution, Horizontal Inequity, and Reranking," Public Finance Review, , vol. 36(5), pages 563-587, September.
    5. Sami Bibi & Jean‐Yves Duclos, 2010. "A Comparison Of The Poverty Impact Of Transfers, Taxes And Market Income Across Five Oecd Countries," Bulletin of Economic Research, Wiley Blackwell, vol. 62(4), pages 387-406, October.
    6. Edward N. Wolff & Ajit Zacharias, 2007. "The Distributional Consequences Of Government Spending And Taxation In The U.S., 1989 And 2000," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(4), pages 692-715, December.
    7. Lerman, Robert I. & Yitzhaki, Shlomo, 1995. "Changing Ranks and the Inequality Impacts of Taxes and Transfers," National Tax Journal, National Tax Association;National Tax Journal, vol. 48(1), pages 45-59, March.
    8. Lambert, Peter J, 1985. "On the Redistributive Effect of Taxes and Benefits," Scottish Journal of Political Economy, Scottish Economic Society, vol. 32(1), pages 39-54, February.
    9. Ivica Urban, 2010. "Decomposing Redistributive and Reranking Effects to Reveal Contributions of Taxes and Benefits," wiiw Balkan Observatory Working Papers 85, The Vienna Institute for International Economic Studies, wiiw.
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    Cited by:

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    More about this item

    Keywords

    redistributive effects; decomposition; taxes; welfare expenditures; JEL: H23; D31; 138;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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