Government expenditure in the DINA framework: Allocation methods and consequences for post-tax income inequality

Lukas Riedel and Holger Stichnoth

No 22-004, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Constructing measures of post-tax income inequality that are consistent with national accounts requires the allocation of the entirety of government expenditure to individuals. About half of government expenditure in the United States takes the form of in-kind collective expenditure (e.g., education, defense, infrastructure). The dominant assumption in the literature is to allocate this expenditure proportionally to post-tax cash income. We show that the gap in post-tax income shares between the Top 10% and Bottom 50% in the United States is reduced by half (from about 20 to 10 percentage points in recent years) when this assumption is replaced by a lump-sum allocation. We further provide direct evidence on how a substantial part of collective expenditure is actually distributed. When adopting the cross-sectional perspective of the Dina approach, we find that public education spending goes disproportionately to the bottom half of the income distribution. A lump-sum allocation provides a good approximation. Moving beyond the cross-section, we find that public education expenditure is positively correlated with both lifetime earnings and parents' socio-economic status.

Keywords: inequality; redistribution; education; in-kind transfers (search for similar items in EconPapers)
JEL-codes: D31 H41 H52 I24 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/250388/1/1789679443.pdf (application/pdf)

Related works:
Working Paper: Government Expenditure in the DINA Framework: Allocation Methods and Consequences for Post-Tax Income Inequality (2022)
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:zbw:zewdip:22004

Access Statistics for this paper

More papers in ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().