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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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Inequality and Poverty in the United States
Public Policies for Inclusive Growth
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- Oliver Denk1, Robert P. Hagemann1, Patrick Lenain1, Valentin Somma2
- Author Affiliations
- 1: OECD, France
- 2: Columbia University, United States
- 27 May 2013
- Bibliographic information
Income inequality and relative poverty in the United States are among the highest in the OECD and have substantially increased over the past decades. These developments have been associated with a number of other worrying statistics, including low intergenerational social mobility and weak real income growth for many households. A more inclusive pattern of growth would require less pronounced gaps in outcomes and opportunities across social groups and a broader sharing of the benefits of growth. The present paper analyses the causes of US income inequality and relative poverty in an OECD context, especially the role of the tax-and-transfer system, and suggests public policies to promote inclusive growth. To a significant degree, high income inequality is attributable to the large dispersion of earned income, which should be addressed by reforming education, so as to provide disadvantaged students with the skills needed to fully realise their potential. In addition, taxes and transfers contribute less to income redistribution than in other OECD countries. If well designed, reforms that promote inclusive growth could also help reduce the market distortions resulting from the current tax-and-transfer system. In particular, phasing out personal and corporate tax expenditures that disproportionately benefit high earners would lower income inequality and improve resource allocation. As well, social transfers could be more effective in alleviating poverty through better targeting of the truly needy while reducing administrative complexity.
- education systems, means-tested transfers, income redistribution, inclusive growth, social insurance, social welfare system, transfer system, capital taxation, tax system, poverty, tax expenditures, United States, income inequality
- JEL Classification:
- D31: Microeconomics / Distribution / Personal Income, Wealth, and Their Distributions
- D63: Microeconomics / Welfare Economics / Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- H2: Public Economics / Taxation, Subsidies, and Revenue
- H5: Public Economics / National Government Expenditures and Related Policies
- H7: Public Economics / State and Local Government; Intergovernmental Relations
- I3: Health, Education, and Welfare / Welfare, Well-Being, and Poverty