Why has Income Inequality in Germany Increased From 2002 to 2011? A Behavioral Microsimulation Decomposition

This paper proposes a method to decompose changes in income inequality into the contributions of policy changes, wage rate changes, and population changes while considering labor supply reactions. Using data from the Socio‐Economic Panel (SOEP), this method is applied to decompose the increase in income inequality in Germany from 2002 to 2011, a period that saw tax reductions and a controversial overhaul of the transfer system. The simulations show that tax and transfer reforms have had an inequality‐reducing effect as measured by the mean log deviation and the Gini coefficient. For the Gini, these effects are offset by labor supply reactions. In contrast, policy changes explain part of the increase in the ratio between the 90th and the 50th income percentiles. Changes in wage rates have led to a decrease in income inequality. Thus, the increase in inequality was due to changes in the population.     

On the Limitations of Some Current Usages of the Gini Index

This note constructs a simple two class example in which the Gini index is held constant while the size of the rich and poor populations change, in order to illustrate how very different societies can have the same Gini index and produce very similar estimates of standard inequality averse Social Welfare Functions. The rich/poor income ratio can vary by a factor of over 12, and the income share of the top one per cent can vary by a factor of over 16, with exactly the same Gini index. Focussing solely on the Gini index can thus obscure perceptions—e.g. of important market income trends or large changes in the redistributive impact of the tax and transfer system. Hence, analysts should supplement the use of an aggregate summary index of inequality with direct examination of the segments of the income distribution which they think are of greatest importance.     

Estimating the revenue losses of international corporate tax avoidance: the case of the Czech Republic

International corporate tax avoidance by multinational enterprises likely lowers the Czech Republic’s corporate income tax revenue, but it is not clear by how much. To clarify this I first review existing estimates of the revenue losses of international corporate tax avoidance to government revenue worldwide. I then discuss revenue estimates relevant for the Czech Republic and develop a few new, albeit only illustrative, ones. None of the existing research focused on the Czech Republic nor did the six recent international studies I examine provide reliable estimates for the Czech Republic. The extrapolations from these studies result in a revenue loss of a quite wide range with a median of 10% of current corporate income tax revenues. The other newly prepared estimates, based on firm-level and aggregate data, are of similar magnitude. I conclude with a discussion of these rough estimates as well as questions for further research and policy recommendations.     

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.     

Real exchange rates,economic performance,and trade balances in the central european free trade association

The relationships between real exchange rates dynamics, domestic economic growth, and external economic positions are examined for four East European countries: Poland, Hungary, Slovakia, and the Czech Republic. Results show that in Poland the dynamic of the trade balance is independent of both the real exchange rate and industrial production. In both Hungary and Slovakia, trade balances appear to have strong autonomous components, albeit in circumstances where the influence of real exchange rates and industrial production dynamics cannot be entirely denied. The Czech Republic's situation is, however, substantially different from its Central European Free Trade Assocation partners. The growing trade balance deficit appears to be determined by both the continuing real appreciation of the Czech currency and a mildly accelerating industrial production growth. Both are the consequence of accelerating capital inflow.     

EFFECTS OF GOVERNMENT POLICIES ON URBAN AND RURAL INCOME INEQUALITY

We use three conventional inequality indices—the Gini, the coefficient of variation of income, and the relative mean deviation of income—and the Atkinson index to examine the effect of income tax rates, the minimum wage, and all the major government welfare and transfer programs on the evolution of income inequality for rural and urban areas by state from 1981 to 1997. We find that these programs have qualitatively similar but quantitatively different effects on urban and rural areas. Most importantly, taxes are more effective in redistributing income in urban than in rural areas, while welfare and other government transfer programs play a larger role in rural areas.     

Inequality within generation: Evidence from France

Intra-generational inequalities focus on the distributions within age groups. On the basis of French household income surveys carried out from 1996 to 2014, the Gini coefficient and D9/D1 inter-decile ratio were calculated so as to evaluate intra-generational income inequality before and after redistribution by the tax and welfare system. Age-Cohort-Period models were then estimated in order to disentangle age and generation effects. Over a life cycle, intra-generational inequality displays a hump-shaped curve peaking at age 55–59. This inequality is significantly lower among the youngest, whichever inequality indicator is used, and among the oldest, when measured by the inter-decile ratio. Comparison of pre- and post-redistribution income reveals that the tax and welfare system particularly reduces inequality among the young. Intra-generational inequality measured by the Gini coefficient increases significantly from one generation to the next. Measured by the inter-decile ratio, the increase is considerable for the gross income of those generations born from the 1970s on. However, the tax and welfare system has compensated for this increase, because analysis of the inter-decile ratio applied to disposable income shows no significant difference between generations.     

Increased sorting and wage inequality in the Czech Republic

This paper makes use of a linked employer–employee dataset to examine the evolution of wage inequality in the Czech Republic during 1998–2006. We find evidence of slightly increasing returns to human capital and diminishing gender inequality and document sharp increases in both within‐firm and between‐firm inequality. We investigate several hypotheses to explain these patterns: increased domestic and international competition, decentralized wage bargaining, skill‐biased technological change and a changing educational composition of the workforce. Domestic competition is found to lower within‐firm inequality whereas we find no evidence that increased international trade at the industry level is associated with higher between‐ or within‐firm wage inequality. The key factors driving the observed increase in wage inequality are increased educational sorting and the inflow of foreign firms to the Czech Republic.     

Corporate Tax Incentives for R&D Investment in OECD Countries

Differentiating internal equity from debt finance, this study examines the generosity of R&D-specific tax incentives in OECD countries based on an NPV model. The corporate tax system generally favours debt finance and some previous findings on the possible preponderance of internal equity for financing R&D investment cannot be explained in relation to R&D-specific tax concessions. The OECD comparison demonstrates that R&D tax allowances adopted in the Czech Republic, Belgium, the UK, Denmark, Hungary, Austria and Australia generated the most substantial tax savings in 2006. Combined with such incentives, the after-tax NPV increases with the corporate tax rate, suggesting stronger investment stimulation through a tax-rate-increase-cum-base-broadening policy.     

Dynamic elasticities of tax revenue: evidence from the Czech Republic

Tax revenue elasticities with respect to tax bases are key parameters for the modeling of public finances. Yet the existing studies estimating these elasticities for emerging countries disregard the effects of tax reforms on tax revenue, which renders their estimates inconsistent. We introduce a framework for estimating both short- and long-run tax revenue elasticities using quarterly data adjusted for the effects of reforms. Our results suggest that the long-run elasticities in the Czech Republic are 1.4 for wage tax, 0.9 for value added tax, 1.7 for profit tax and 1 for social security contributions. The adjustment process for value added tax and social security contributions is fast, but for the remaining two categories, it is important to distinguish between the short- and long-run elasticities: the initial response of revenue to changes in the bases is weak. In the case of wage tax it takes half a year for the elasticity to surpass unity.     

Information technology, organizational form, and transition to the market

The paper reviews theories of information technology adoption and organizational form and applies them to an empirical analysis of firm choices and characteristics in four transition economies: Czech Republic, Hungary, Romania, and Slovakia. We argue that two major structural changes have occurred, one concerning technology and another concerning firm ownership and boundaries, and we consider how each change may have affected the other. We estimate the impact of firm size, integration, and ownership on new information technology adoption and the impact of information technology on changes in firm boundaries and ownership, using a sample survey of 330 firms.     

Are Tax Expenditures of Individuals Only a Tool of Tax Optimisation?

The paper focuses on tax expenditures of individuals, which are one of the fiscal tools of the state. In the Czech Republic they are primarily aimed at housing policy, pension policy, and philanthropy, and the question is the extent to which tax expenditures can influence the preferences of tax payers. The aim of this paper is to evaluate the effect of tax expenditures of individuals in the form of tax deductions for social policy, housing support and retirement savings. We also evaluate whether these tax deductions fulfill the fiscal functions for which they were introduced and the extent to which taxpayers use them. Methodically, the research is based on the analysis of secondary statistical data of the Financial Administration of the Czech Republic and results from aggregated tax returns filed for the period 2005–2015. The effect of tax deductions was decreased by abolition of the progressive rate of personal income taxes and by introduction of a uniform tax rate of 15%. Tax deductions for retirement savings do not have a sufficiently strong motivational impact and do not affect taxpayers in the context of public policy. Deductions for mortgage interest can be regarded as a form of major housing support, but are related to taxpayer income and favor those with higher incomes.     

Central Bankers and Central Bank Independence

This paper uses results of a questionnaire survey to look at how central bankers inthe Czech Republic, Hungary, Poland and Slovakia view various criteria of centralbank independence and compares their responses with central bankers in industrialcountries. Central bankers from both groups agree very strongly on the importanceof two pillars of central bank independence: goal independence and freedom toimplement these goals, together with a system of how credit is granted by a centralbank to a government that gives the central bank powers to determine terms andlimits the extent of such credit. Based on the responses, the paper also identifiessome weaknesses of the most frequently used indices of central bank independenceand makes recommendations on how to improve them.     

Investigating the Balassa‐Samuelson hypothesis in the transition: Do we understand what we see? A panel study

This paper studies the Balassa‐Samuelson (B‐S) effect in the Czech Republic, Hungary, Poland, Slovakia and Slovenia. We use time series and panel cointegration techniques and show that the B‐S effect works reasonably well in the transition economies under study during the period from 1991:Q1 to 2001:Q2. However, we find, that productivity growth does not fully translate into price increases because of the construction of the CPI indexes. We therefore argue that productivity growth will not hinder meeting the Maastricht criterion on inflation in the medium term. In addition, the observed appreciation of the CPI‐deflated real exchange rate is found to be systematically higher compared with the real appreciation the B‐S effect could justify, especially in the cases of the Czech Republic and Slovakia. This can be partly explained by the trend appreciation of the tradable price‐based real exchange rate, increases in non‐tradable prices due to price liberalization and demand‐side pressures and the evolution of the nominal exchange rate determined by the nature of the exchange rate regime and the magnitude of capital inflows. JEL classification: E31, F31, O11, P17,     

Non-standard methods in the privatization strategies of the Czech Republic,Hungary and Poland1

The Czech Republic, Hungary and Poland followed different strategies in the use of non-standard methods of privatization. In regard to restitution, the Czech Republic carried out physical return of property, Hungary weakly implemented financial compensation and Poland has not yet approved a programme. Management and employee buyouts were eschewed in the Czech Republic, took the form of employee stock ownership plans in Hungary and were accomplished chiefly by lease-purchase in Poland. The Czech mass privatization programme distributed a considerable amount of joint-stock company shares free through voucher auctions in which citizens participated directly or through financial intermediaries. In contrast, the Polish programme provided citizens free shares in investment trusts that exercise corporate governance over operating companies and restrure them for divestiture. Hungary's programme, which offered people only interest-free loans to buy some shares in intial public offerings, was abandoned soon after its start.     

Measuring Attitudes Towards Inequality

Individuals' attitudes to inequality aversion are measured using survey data, based on the leaky-bucket experiment, for several groups of students in Australia and Israel. Three forms of social welfare function are estimated. It is found that measures of inequality aversion can be obtained with some precision and that these estimates are substantially lower than the values typically used by those measuring inequality and examining optimal tax structures. Furthermore, a welfare function based on the Gini inequality measure is generally found to give a better fit than forms based on constant relative or constant absolute inequality aversion.
JEL Classification : C 91; D 63     

Decomposition of the Gini Index by Sources of Income

The Gini concentration coefficient is considered to be the best synthetic inequality measure and is widely used in economic research. In this paper, we present its decomposition by factor components with an application to income distributions in Poland. Income inequality measures proposed by Gini, Zenga and Bonferroni are calculated for different socio-economic groups based on their exclusive or primary source of maintenance. For theoretical income distribution, the Dagum type-I model was used. The basis for the calculations was the individual data coming from the Household Budgets Survey conducted quarterly by the Polish Central Statistical Office. Using the decomposition of inequality by source, we were able to examine how changes in particular income components affected overall inequality.      

The World Distribution of Income And Its Inequality, 1970–2009

This paper provides a full decomposition of world inequality, as measured by the Gini coefficient, in the period 1970–2009. In particular, using the Analysis of Gini (ANOGI), the paper describes the evolution of between inequality, within inequality, and the impact of overlapping on both factors. While there is evidence that between inequality in the last decade significantly declined due to the rapid Chinese growth, within inequality and overlapping went in the opposite direction. Furthermore, with the exception of some Asian countries, the rest of the world has not moved significantly. As a result, world inequality remains high by any standard.     

中国农村地区间居民收入差距及构成变化:1995—2008年——基于基尼系数的分解

本文采用分省的面板数据对农村地区间基尼系数分解结果表明,1995—2008年,中国农村地区间收入差距总体上仍然呈现上升趋势,基尼系数上升了0.0639,但增幅出现明显减弱趋势。基尼系数变化及农村居民工资性收入对基尼系数的贡献变化显示出与经济发展阶段变化一致的含义;结构性效应已不再是农村地区间收入差异的唯一构成来源,收入集中效应对基尼系数起了明显的增加作用,工资性收入的集中效应超过了其他收入来源。这些构成来源的变化蕴含着中国面临调节地区间农村收入差距的政策机遇。     

A tale of two Ginis in the US, 1921–2012

Following a methodology by Jantzen and Volpert (2012), we use IRS Adjusted Gross Income data for the US (1921–2012) to estimate two Gini indices representing inequality at the bottom and the top of the income distribution, and to calculate the overall Gini as a function of the parameters underlying the two indices. A steady increase in the overall Gini since the Second World War actually hides two different periods of distributional changes. First, the increase in inequality from the mid 1940s to the late 1970s is driven by rising inequality at the bottom of the income distribution that more than offsets a decrease in inequality at the top. The implication is that middle-income earners gained relative to high-incomes, and especially relative to low-income earners. Second, the rise in the Gini after 1981 is driven by rising inequality at the top. Third, top-driven inequality follows a U-shaped trajectory consistent with Piketty and Saez (2003, 2006). Fourth, the welfare effects of the different distributional changes behind increasing inequality can be evaluated in light of the Lorenz-dominance criterion by Atkinson (1970): we argue that the rise in inequality since 1981 is much more likely to be associated with a social welfare loss net of compensating growth.