The Effect of Inequality on Redistribution: An Econometric Analysis

Michael J. Boskin, Kareem Elnahal and Adam Zhang

No 32492, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using data on U.S. state and federal taxes and transfers over a quarter century, we estimate a regression model that yields the marginal effect of any shift of market income share from one quintile to another on the entire post tax, post-transfer income distribution. We identify exogenous income distribution changes and account for reverse causality using instruments based on exposure to international trade shocks, international commodity price shocks and national industry demand shocks, as well as lagged endogenous variables, with controls for the level of income, the business cycle and demographics. We find the degree of attenuation of market income shifts initially increases in quintile rank, peaks at the middle quintile and then falls for higher income quintiles, consistent with median voter political economy theory and what Stigler called Director’s Law. We also provide evidence of considerable and systematic spillover effects on quintiles neither gaining nor losing in the “experiments,” also favoring the middle quintile, what we label the greedy median voter. “Voting” and “income insurance” coalition analyses are presented. We find a strong negative relationship between average real income and redistribution and a modest effect of two year led inequality.

JEL-codes: H10 H2 H20 H30 H5 H50 H51 H53 H7 H70 H71 H72 H75 H77 P0 P00 P1 P10 P16 P46 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-pbe and nep-pub
Note: PE
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w32492.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

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:nbr:nberwo:32492

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w32492
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by (wpc@nber.org).