Partisan Tax Policy and Income Inequality in the U.S., 1979-2007

Olivier Bargain, Mathias Dolls, Herwig Immervoll, Dirk Neumann (), Andreas Peichl, Nico Pestel and Sebastian Siegloch

No 7190, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method that allows us to disentangle the direct policy effect from the effect of changing market incomes. Over the whole period 1979-2007 the cumulative tax policy effect aggravated income inequality by increasing the income share of the top 20% in contrast to the middle class' share. The tax policy effect accounts for up to 29% of the total change in inequality; its contribution increases up to 41% if we take into account behavioral responses. Using our unique policy effect measure and variation in tax policies across U.S. states and time, we also identify the redistributive intention of policymakers. The estimated effect of partisan politics on the U.S. income distribution is statistically significant and economically important. Republican policymakers increased inequality especially at the top whereas Democrats increased the income share of the bottom 80% of the distribution.

Keywords: partisan politics; redistribution; inequality; tax policy; political economy (search for similar items in EconPapers)
JEL-codes: H23 H31 H53 P16 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2013-01
New Economics Papers: this item is included in nep-ltv, nep-pbe, nep-pol and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published - revised version published as 'Tax Policy and Income Inequality in the United States, 1979–2007' in: Economic Inquiry , 2015, 53 (2), 1061-1085

Downloads: (external link)
https://docs.iza.org/dp7190.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp7190

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().