The redistribution and insurance value of welfare reform
No W14/21, IFS Working Papers from Institute for Fiscal Studies
Relatively little is known about the roles that taxes and transfers play in redistributing resources and providing insurance across individuals and across the lifecycle. We embed these alternative roles in a lifecycle model, allowing us to demonstrate what the tax and transfer system achieves from a lifecycle perspective and why it is valuable. We undertake a five-way decomposition of net transfers into a giveaway term and terms corresponding to between- and within-individual redistribution and between- and within-individual insurance. These components are distinguished from perspective of the start of working life, and we consider both the magnitude of net transfers involved and the associated welfare values. Our focus is on females and we also highlight how behavioural responses affect the results. Analysis is conducted for the 2015 UK tax and transfer system relative to a flat-rate baseline, showing what value is provided by the complex tax and welfare entitlement rules in a modern economy. We also consider what is achieved by two important UK benefit reforms--the working families' tax credit (WFTC) reform of 1999 and the universal credit (UC) reform that began in 2013. Our main conclusions are that insurance against wage and family composition shocks is substantial and highly valued by individuals. Within-individual redistribution (i.e. across periods of life) is generally of little value even in the presence of strict borrowing constraints. Behavioural responses tend to increase the size of reform giveaways at the expense of the other components.
Keywords: tax; insurance; redistribution (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ias and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ifs:ifsewp:14/21
Ordering information: This working paper can be ordered from
The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE
Access Statistics for this paper
More papers in IFS Working Papers from Institute for Fiscal Studies The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE. Contact information at EDIRC.
Bibliographic data for series maintained by Emma Hyman ().