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Title: Partisan Tax Policy and Income Inequality in the U.S., 1979-2007

Citation Type: Working Paper

Publication Year: 2013

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Abstract: We assess the effects of U.S. tax policy reforms on inequality by applying a newdecomposition method that allows us to disentangle the direct policy effect from the effect ofchanging market incomes. Over the whole period 1979-2007 the cumulative tax policy effectaggravated income inequality by increasing the income share of the top 20% in contrast tothe middle class share. The tax policy effect accounts for up to 29% of the total change ininequality; its contribution increases up to 41% if we take into account behavioral responses.Using our unique policy effect measure and variation in tax policies across U.S. states andtime, we also identify the redistributive intention of policymakers. The estimated effect ofpartisan politics on the U.S. income distribution is statistically significant and economicallyimportant. Republican policymakers increased inequality especially at the top whereasDemocrats increased the income share of the bottom 80% of the distribution.

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Authors: Pestel, Nico; Peichl, Andreas; Immervoll, Herwig; Dolls, Mathias; Neumann, Dirk; Siegloch, Sebastian; Bargain, Olivier

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Publication Number: 7190

Institution: Institute for the Study of Labor

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Publisher Location: P.O. Box 7240, 53072, Bonn, Germany

Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure, Methodology and Data Collection

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