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Title: Tax Policy and Income Inequality in the U.S., 1978-2007
Citation Type: Working Paper
Publication Year: 2011
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Abstract: Income inequality has dramatically increased over the past 30 years in the United States. Simple comparisons of pre- and post-tax income distributions show nonetheless a substantial effect of the progressive tax system, including extensions of the EITC, in reducing the extent of inequality. In this paper, we ask if, and to what extent, the tax system and the policy changes occurring over 1978-2007 have indeed slowed or accelerated trends towards greater income disparities. To isolate the policy effect from other factors, i.e., changes in the pre-tax income distribution, we perform a series of detailed counterfactual simulations. Our decomposition ofinequality changes shows that the cumulative increase in redistribution over time is essentially due to the increased inequality in pre-tax incomes. Looking at morespecific periods, we show that the actual policy effects are in line with popular perceptions regarding the political cycle, i.e., with disequalising (equalising) effects observed for policy changes implemented during Republican (Democrat) administrations. There were significant differences between results for the lower and upper parts of the distribution.
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Authors: Dolls, Mathias; Immervoll, Herwig; Bargain, Olivier; al., et
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Institution: IZA
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Data Collections: IPUMS CPS
Topics: Other
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