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Redistributive Effect and the Progressivity of Taxes and Benefits: Evidence for the UK, 1977-2018

Author

Listed:
  • Herault, Nicolas

    (University of Bordeaux)

  • Jenkins, Stephen P.

    (London School of Economics)

Abstract
We apply the Kakwani approach to decomposing redistributive effect into average rate, progressivity, and reranking components using yearly UK data covering 1977-2018. We examine cash and in-kind benefits, and direct and indirect taxes. In addition, we highlight an empirical implementation issue - the definition of the reference ('pre-fisc') distribution. Drawing on an innovative counterfactual approach, our empirical analysis shows that trends in the redistributive effect of cash benefits are largely associated with cyclical changes in average benefit rates. In contrast, trends in the redistributive effects of direct and indirect taxes are mostly associated with changes in progressivity. For in-kind benefits, changes in the average benefit rate and progressivity each played the major roles at different times.

Suggested Citation

  • Herault, Nicolas & Jenkins, Stephen P., 2021. "Redistributive Effect and the Progressivity of Taxes and Benefits: Evidence for the UK, 1977-2018," IZA Discussion Papers 14819, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp14819
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    References listed on IDEAS

    as
    1. Nicolas Herault & Francisco Azpitarte, 2015. "Recent Trends in Income Redistribution in Australia: Can Changes in the Tax-Benefit System Account for the Decline in Redistribution?," The Economic Record, The Economic Society of Australia, vol. 91(292), pages 38-53, March.
    2. Dominic Webber & Richard Tonkin & Martin Shine, 2020. "Using Tax Data to Better Capture Top Incomes in Official UK Income Inequality Statistics," NBER Chapters, in: Measuring Distribution and Mobility of Income and Wealth, pages 679-700, National Bureau of Economic Research, Inc.
    3. Suits, Daniel B, 1977. "Measurement of Tax Progressivity," American Economic Review, American Economic Association, vol. 67(4), pages 747-752, September.
    4. Ivica Urban, 2009. "Kakwani decomposition of redistributive effect: Origins, critics and upgrades," Working Papers 148, ECINEQ, Society for the Study of Economic Inequality.
    5. Gerlinde Verbist & Francesco Figari, 2014. "The Redistributive Effect and Progressivity of Taxes Revisited: An International Comparison across the European Union," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(3), pages 405-429, September.
    6. Palme, Marten, 1996. "Income distribution effects of the Swedish 1991 tax reform: An analysis of a microsimulation using generalized Kakwani decomposition," Journal of Policy Modeling, Elsevier, vol. 18(4), pages 419-443, August.
    7. Nanak Kakwani & Hyun Hwa Son, 2021. "Normative Measures of Tax Progressivity: an International Comparison," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(1), pages 185-212, March.
    8. Kakwani, Nanak C, 1977. "Applications of Lorenz Curves in Economic Analysis," Econometrica, Econometric Society, vol. 45(3), pages 719-727, April.
    9. Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
    10. Aronson, J Richard & Johnson, Paul & Lambert, Peter J, 1994. "Redistributive Effects and Unequal Income Tax Treatment," Economic Journal, Royal Economic Society, vol. 104(423), pages 262-270, March.
    11. Lambert, Peter J, 1985. "On the Redistributive Effect of Taxes and Benefits," Scottish Journal of Political Economy, Scottish Economic Society, vol. 32(1), pages 39-54, February.
    12. Jenkins, Stephen, 1988. "Reranking and the Analysis of Income Redistribution," Scottish Journal of Political Economy, Scottish Economic Society, vol. 35(1), pages 65-76, February.
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    1. Redistributive Effect and the Progressivity of Taxes and Benefits: Evidence for the UK, 1977–2018
      by maximorossi in NEP-LTV blog on 2022-03-09 11:11:25

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    More about this item

    Keywords

    reranking; Kakwani decomposition; inequality; redistributive effect; progressivity; benefits; taxes;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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