OECD Economics Department Working Papers

ISSN :: 1815-1973 (online)
DOI :: 10.1787/18151973

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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.

Less Income Inequality and More Growth – Are They Compatible? Part 3. Income Redistribution via Taxes and Transfers Across OECD Countries

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Authors:

Isabelle Joumard¹, Mauro Pisu¹, Debra Bloch¹

Author Affiliations

1: OECD, France

Publication Date

10 Jan 2012

Bibliographic information

No.:: 926

Pages

DOI

10.1787/5k9h296b1zjf-en

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Taxes and transfers reduce inequality in disposable income relative to market income. The effect varies, however, across OECD countries. The redistributive impact of taxes and transfers depends on the size, mix and the progressivity of each component. Some countries with a relatively small tax and welfare system (e.g. Australia) achieve the same redistributive impact as countries characterised by much higher taxes and transfers (e.g. Germany) because they rely more on income taxes, which are more progressive than other taxes, and on means-tested cash transfers. This paper provides an assessment of the redistributive effect of the main taxes and cash transfers based on a set of policy indicators and a literature review. It also identifies empirically four groups of countries with tax and transfer systems that share broadly similar features. The paper then assesses potential trade-offs and complementarities between economic growth and income redistribution objectives associated with various tax and transfer reform options.

Keywords:: welfare system, income inequality, transfers, taxes, redistribution, cluster analysis

JEL Classification:

H2: Public Economics / Taxation, Subsidies, and Revenue
H23: Public Economics / Taxation, Subsidies, and Revenue / Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H53: Public Economics / National Government Expenditures and Related Policies / Government Expenditures and Welfare Programs
I3: Health, Education, and Welfare / Welfare and Poverty
I38: Health, Education, and Welfare / Welfare and Poverty / Government Policy; Provision and Effects of Welfare Programs