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Income inequality and the welfare state: How redistributive is the public sector?

Thomas Obst ()

No 29/2013, IPE Working Papers from Berlin School of Economics and Law, Institute for International Political Economy (IPE)

Abstract: This paper explores the nexus between the phenomenon of increasing income inequality and redistributive effects of the public sector. In an empirical analysis of seven OECD countries the redistributive effect will be examined by measuring the difference between inequality of market incomes and disposable incomes. Moreover, this paper will try to estimate the redistributive effect of public goods. The period of investigation is between the mid 1980s and the mid 2000s. The paper suggests that the public sector still reduces market income inequality significantly but to a lower extent than in the previous decades and with greater variation across different welfare regimes. Public goods further reduce income inequality considerably. However, the estimation and allocation process of these in-kind benefits involves several methodological issues that need to be taken into account when evaluating the empirical results. Furthermore, the empirical analysis indicates that market forces drove greater income inequality until the mid 1990s, and structural changes in tax and transfer systems reinforced this trend from the mid 1990s onwards.

Keywords: income inequality; welfare state; public sector; redistribution; tax and transfer systems; public goods; market and disposable income (search for similar items in EconPapers)
JEL-codes: H23 H41 H53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur, nep-ltv, nep-pbe and nep-pub
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
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