THE INCOME REDISTRIBUTION EFFECT OF CHINA'S PERSONAL INCOME TAX: WHAT THE MICRO‐DATA SAY

This article uses continuous micro‐level data to investigate the income redistribution effect of the personal income tax (PIT) in China beginning in 1997. We find that the average tax rate plays a larger role in determining the income redistribution effect of PIT than tax progressivity does. Although tax progressivity decreased as a result of rising personal incomes and a constant PIT policy prior to 2005, the income redistribution effect of the PIT improved as a result of the higher average tax rate. The tax reform beginning in 2006 increased tax progressivity while decreasing the average tax rate, thereby weakening the income redistribution effect of the PIT. Further analysis indicates that the middle‐income group was the only net loser before 2005, but it benefited from the PIT policy reform. A cross‐country comparison shows that China has a lower PIT burden and higher progressivity than developed countries; in fact, China's levels of progressivity and tax burden are similar to those of Latin American countries. (JEL H24, D31, H31)     

EMPIRICAL RESULTS CONCERNING VERTICAL AND HORIZONTAL REDISTRIBUTION IN FINLAND

Redistributional effects of income transfers, taxation and social goods in Finland have been studied making use of household surveys for 1966 and 1971 and the input-output study for 1970. According to the study the selection of income to be used as the criterion in carrying out the decile grouping substantially influences the picture that is obtained of the magnitude of redistribution. If factor income is used as the criterion in carrying out the decile grouping, the redistribution appears substantially greater than when disposable income is used as the criterion. On the other hand, whether income is calculated per capita or per household does not substantially influence the overall picture of redistribution obtained. The breakdown of factor income seems to have remained practically the same in Finland in the interval between the study years, while redistribution seems to have levelled income differences more in 1971 than in 1966.     

Measuring lnequality in the Middle East 1990–2016: The World’s Most Unequal Region?

In this paper we combine household surveys, national accounts, income tax data and wealth data in order to estimate income concentration in the Middle East for the period 1990–2016. According to our benchmark series, the Middle East appears to be the most unequal region in the world, with a top decile income share as large as 64 percent, compared to 37 percent in Western Europe, 47 percent in the US and 55 percent in Brazil (see Alvaredo et al. 2018). This is due both to enormous inequality between countries (particularly between oil‐rich and population‐rich countries) and to large inequality within countries (which we probably under‐estimate, given the limited access to proper fiscal data). We stress the importance of increasing transparency on income and wealth in the Middle East, as well as the need to develop mechanisms of regional redistribution and investment.     

AN EMPIRICAL ANALYSIS OF THE ASSOCIATION BETWEEN NEIGHBORHOOD INCOME AND UNIT NON‐RESPONSE IN THE SURVEY OF HEALTH,AGEING, AND RETIREMENT IN EUROPE

This paper estimates associations between individual and neighborhood characteristics and unit non‐response in a survey of the population aged 50 and over in the Netherlands in 2004. The statistical model includes interviewer fixed effects to control for the non‐random distribution of addresses over interviewers. The empirical analysis shows that, relative to individuals living in apartments, there is a lower unit non‐response among individuals living in houses and a higher unit non‐response among individuals living in old age institutions. Unit non‐response is positively associated with the size of a city. No age and gender effects are found. Unit non‐response is about 25 percent lower among individuals in the top than among individuals in the bottom of the distribution of neighborhood average income. This latter result implies that the response sample is biased toward individuals living in the more wealthy neighborhoods.     

FINANCE,DISTRIBUTION AND THE ECONOMIC OBJECTIVE OF FINANCIAL COOPERATIVE INSTITUTIONS

This paper proposes a model where the structure rather than the size of the financial sector explains its influence on income distribution. Because of information asymmetries, a financial sector dominated solely by profit‐maximizing financial intermediaries will increase income and wealth inequality as it gives preferential access to credit for high‐income agents, whereas a diversified inclusive financial sector with alternative models of finance, like cooperatives, will reduce the inequality gap. No full convergence in income distribution can be realized through finance only and there is still a need for redistribution policies. Accordingly, an objective function for cooperative financial institutions should define a desired pricing behaviour that can increase the income of members at a rate higher than the average growth rate of the economy.     

Misperceiving inequality

A vast literature suggests that economic inequality has important consequences for politics and public policy. Higher inequality is thought to increase demand for income redistribution in democracies and to discourage democratization and promote class conflict and revolution in dictatorships. Most such arguments crucially assume that ordinary people know how high inequality is, how it has been changing, and where they fit in the income distribution. Using a variety of large, cross‐national surveys, we show that, in recent years, ordinary people have had little idea about such things. What they think they know is often wrong. Widespread ignorance and misperceptions emerge robustly, regardless of data source, operationalization, and measurement method. Moreover, perceived inequality—not the actual level—correlates strongly with demand for redistribution and reported conflict between rich and poor. We suggest that most theories about political effects of inequality need to be reframed as theories about effects of perceived inequality.     

Wealth Concentration over the Path of Development: Sweden, 1873–2006*

We study wealth concentration in Sweden over 130 years, from the beginning of industrialization until the present day. Our series are based on new evidence from estate and wealth tax data, foreign and domestic family firm‐wealth, and pension wealth estimates. We find that Swedish wealth concentration was high in the agrarian state, and changed little during early industrialization. From World War I until about 1950, the richest percentile lost ground to high‐income earners in the rest of the top‐wealth decile. This equalization continued postwar; the entire top decile lost‐out relative to the rest of the population. Around 1980, wealth compression stopped and inequality increased. We approximate the effects of international flows and find that the recent increase in wealth inequality is probably larger than what official estimates suggest.     

The Income Splitting Method: Is it Good for Both Marriage Partners?

Abstract. This paper analyzes how deviating from individual taxation affects married couples. The focus is on time allocation, on investment in family‐specific human capital and on distribution of income within the family. Two insights are discussed in detail. First, the distribution of tax‐reduction gains due to the income splitting system depends on whether the family has been started or not. After marriage, joint taxation increases redistribution among family members. Second, although joint taxation reduces the tax burden of the family, it might harm the marriage partner that is more productive in household production provided that potential marriage partners foresee the effects of joint filing on the time allocation within the family.     

Monopolistic competition and income dispersion

We develop a model of monopolistic competition that accounts for consumers’ heterogeneity in both incomes and preferences. This model makes it possible to study the implications of income redistribution on the toughness of competition. We show how the market outcome depends on the joint distribution of consumers’ tastes and incomes and obtain a closed-form solution for a symmetric equilibrium. Competition toughness is measured by the weighted average elasticity of substitution. Income redistribution generically affects the market outcome, even when incomes are redistributed across consumers with different tastes in a way such that the overall income distribution remains the same.     

On the distributional effects of commodity taxation

A commodity tax system is inequality reducing if the after‐tax distribution of income Lorenz dominates the before‐tax distribution of income, regardless of initial conditions. This paper identifies necessary and sufficient conditions under which an ad valorem commodity tax system is inequality reducing, shedding light on the role of taxing luxury—as opposed to necessary—commodities in the equalization of after‐tax incomes.     

POLICY UNCERTAINTY,ELECTORAL SECURITIES,AND REDISTRIBUTION*

This article investigates how uncertainty about the adoption of a redistribution policy affects political support for redistribution when individuals can trade policy‐contingent securities in the stock market. In equilibrium the support for redistribution is smaller than where no “policy‐insurance market” is available. This implies that in economies with well‐developed financial markets redistribution decreases with the level of participation in these markets and with income inequality. Furthermore, the existence of a policy‐insurance market may lead to a less equal distribution of income than where no insurance is available even if a majority of individuals are redistributing resources through private transfers.     

Understanding Changes in the Distribution and Redistribution of Income: A Unifying Decomposition Framework

In recent decades income inequality has increased in many developed countries but the role of tax and transfer reforms is often poorly understood. We propose a new method allowing for the decomposition of historical changes in income distribution and redistribution measures into: (i) the immediate effect of tax‐transfer policy reforms in the absence of behavioral responses; (ii) the effect of labor supply responses induced by these reforms; and (iii) a third component allowing us to explore the effect of changes in the distribution of a wide range of determinants, including the effect of employment changes not induced by policy reforms. The application of the decomposition to Australia reveals that the direct effect of tax‐transfer policy reforms accounts for half of the observed increase in income inequality between 1999 and 2008, while the increased dispersion of wages and capital incomes also played an important role.     

The income–pollution relationship and the role of income distribution: An analysis of Swedish household data

The main purpose of this study is to analyze the relationship between pollution and income at household level. The study is motivated by the recent literature emphasizing the importance of income distribution for the aggregate relation between pollution and income. The main findings from previous studies are that if the individual pollution–income relationship is non-linear, then aggregate pollution for, say, a whole country, will depend not only on average income, but also on how income is distributed. To achieve our objective we formulate a model for determining the choice of consumption of goods in different types of household. Furthermore we link the demand model to emission functions for various goods. The theoretical analysis shows that without imposing very restrictive assumptions on preferences and the emission functions, it is not possible to determine a priori the slope or the curvature of the pollution–income relation. The empirical analysis shows that, given the model used, the pollution–income relation has a positive slope in Sweden and is strictly concave for all three pollutants under study (CO₂, SO₂, NO_x), at least in the neighbourhood of the observed income for an average household. We also show that altering the prevailing income distribution, holding average income constant, will affect aggregate emissions in the sense that an equalization of incomes will give rise to an increase in emissions. One implication is then that the development of aggregate pollution due to growth depends not only on the income level, but also on how growth is distributed.     

HETEROGENEITY AND REDISTRIBUTION: BY MONETARY OR FISCAL MEANS?*

In models with heterogeneous agents, issues of distribution and redistribution jump to the fore, raising the question: Which policies—monetary or fiscal—work most effectively in transferring income between groups? From Townsend's turnpike model, two basic results emerge to help answer this question. First, the zero lower bound on nominal interest rates often appears as an obstacle to redistribution by monetary means. Second, assumptions about the government's ability to raise tax revenue without distortion and to discriminate between agents in distributing that tax revenue play a large role in determining whether agents prefer to redistribute income by fiscal means instead.     

ECONOMIC FREEDOM AND GROWTH IN U.S. STATE‐LEVEL MARKET INCOMES AT THE TOP AND BOTTOM

This paper investigates the relationship between economic freedom and income growth and inequality across U.S. states over the period 1979–2011. The focus is on market income at the top and bottom of the income distribution. Results show that increases in overall freedom are associated with average income growth. When viewed separately, an increase in overall freedom is associated with larger income growth rates for income earners in the bottom 90% relative to the top 10%. Interestingly, results show that increases in overall economic freedom are related to larger relative growth rates for the top 10% incomes within high‐income states and larger relative growth rates for the bottom 90% incomes within low‐income states. Top‐to‐bottom income ratio regressions suggest a negative and statistically significant relationship between economic freedom and income inequality. (JEL D63, P16, R11)     

The productivity trend in Iran Evidence from manufacturing firms

Iran has been experiencing slow growth for the past ten years. Using plant‐level information, we show that on average firm‐specific productivity in manufacturing sectors declined at the rate of 2.6% annually, while large top decile firms experienced a modest growth in productivity between 2005 and 2011. We decompose this trend and find that within‐plant variation is its main driving force while the between firms and industries component is insignificant. We test several alternative explanations that may contribute to these negative trends. We show that the subsidy reform had a negative effect, while privatization seems to have had no effect. Private management not affected productivity growth, while firm size is associated with higher productivity growth. Also, we find that productivity growth decreases with the energy intensity of the firm. We also find that R&D expenditures significantly increase productivity growth, while the R&D sales ratio is about 0.5% in manufacturing sectors, which is about one‐fifth of the world average. A one‐percent point increase in R&D expenditures increases productivity growth by 0.5%.     

Income Growth and Earnings Variations in New Zealand, 1998–2004

This article analyses changes in the distributions of working‐age individuals' earnings and total income in New Zealand over the period 1998–2004. We find that there have been broad gains in income across the distribution, suggesting the spoils of growth have been shared widely. Mean and median earnings increased 15 and 23 per cent respectively, while mean and median income increased 12–13 per cent. Inequality, as measured by the Gini coefficient, was more stable: earnings inequality fell 4 per cent, while income inequality was unchanged. The main drivers of the changes were employment and real wage growth. We estimate that roughly one‐half of the growth in average incomes was due to employment growth, and one‐quarter each to demographic changes and wage growth. The relative employment and wage contributions varied across the income distribution: employment growth dominated gains at the lower end of the distribution, while wage gains dominated changes at the higher end.     

CHANGING INCOME DISTRIBUTION UNDER DEVELOPMENT: COLOMBIA

This paper examines the available evidence relative to the distribution of income in a developing country, Colombia, over a relatively long span of years, roughly from the mid-30s to the mid-60s, especially in the context of the argument that recent growth has been characterized by worsening distribution and stable or declining incomes for lower income groups. The basic conclusions are that income distribution within agriculture worsened throughout the period, while non-agricultural income probably worsened from the mid-30s to the early 50s, improved from then to the mid-60s, and then leveled off. During the period of improvement in non-agricultural income, it appears that the overall distribution also improved somewhat. Over the period as a whole, the main gainers have been the second and third deciles from the top; the top decile appears to have lost. The bottom two deciles also appear to have lost.     

Redistributing Gains from Globalisation*

This paper analyses the effects of redistribution in a model of international trade with heterogeneous firms in which a fair‐wage effort mechanism leads to firm‐specific wage payments and involuntary unemployment. The redistribution scheme is financed by profit taxes and gives the same absolute lump‐sum transfer to all workers. International trade increases aggregate income and income inequality, ceteris paribus. If, however, trade is accompanied by a suitably chosen increase in the profit tax rate, it is possible to achieve higher aggregate income and a more equal income distribution than in autarky, provided that the share of exporters is sufficiently high.     

DOES COMPULSORY VOTING HELP EQUALIZE INCOMES?

This paper explores the link between compulsory voting and income distribution using a cross‐section of countries around the world. Our empirical cross‐country analysis for 91 countries during the period 1960–2000 shows that when compulsory voting can be strongly enforced the distribution of income improves as measured by the Gini coefficient and the bottom income quintiles of the population. Our findings are robust to changes and additions to our benchmark specification. Because poorer countries are the ones with relatively more unequal distribution of income it might make sense to promote such voting schemes in developing regions, such as Latin America. This, under the assumption that bureaucratic costs related with design and implementation are not excessive.