Working Paper: CEPR ID: DP15415
Authors: Thomas Piketty; Antoine Bozio; Bertrand Garbinti; Jonathan Goupille-Lebret; Malka Guillot
Abstract: How much redistribution policies can account for long-run changes in inequality? To answer this question, we quantify the extent of redistribution over time by the percentage reduction from pretax to post-tax inequalities, and decompose the changes in post-tax inequalities into different redistributive policies and changes in pretax inequalities. To estimate these redistributive statistics, we construct homogenous annual series of post-tax national income for France over the 1900-2018 period, and compare them with those recently constructed for the U.S. We obtain three major findings. First, redistribution has increased in both countries over the period, earlier in the U.S., later in France, to reach similar levels today. Second, the substantial long-run decline in post-tax inequality in France over the 1900-2018 period is due mostly to the fall in pretax inequality (accounting for three quarters of the total decline), and to a lesser extent to the direct redistributive role of taxes, transfers and other public spending (about one quarter). Third, the reason why overall inequality is much smaller in France than in the U.S. is entirely due to differences in pretax inequality. These findings suggest that policy discussions on inequality should, in the future, pay more attention to policies affecting pretax inequality and should not focus exclusively on “redistribution”.
Keywords: inequality; redistribution; taxation; predistribution
JEL Codes: E01; H2; H5; I3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in redistribution in both France and the US (D39) | decline in posttax inequality (H29) |
| decline in pretax inequality (H29) | decline in posttax inequality in France (H29) |
| redistributive role of taxes and transfers (H23) | decline in posttax inequality (H29) |
| differences in pretax inequality (H29) | smaller overall inequality in France compared to the US (D31) |
| increase in pretax inequality in the US since the 1980s (D31) | marked increase in overall inequality in the US (D31) |
| changes in pretax inequality and redistribution (H23) | historical reduction of inequality (N93) |