David K Jesuit Vincent A Mahler Central Michigan University Loyola University Chicago Paper prepared for delivery at the First Annual LISLWS Users Conference University of Luxembourg ID: 605639
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Changes in Poverty Reduction and Fiscal Redistribution in Comparative Perspective: Longitudinal Evidence from the Luxembourg Income Study (LIS)
David K. Jesuit* Vincent A. Mahler Central Michigan University Loyola University Chicago
Paper prepared for delivery at the First Annual LIS/LWS Users Conference, University of Luxembourg,
Belval
, Luxembourg, April 27-28, 2017
.
*Corresponding author: Department of Political Science and Public Administration, Central Michigan University, Mount Pleasant, MI, 48858, USA.
david.jesuit@cmich.edu
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Outline
Update to Fiscal Redistribution Dataset (descriptive)Cross-national comparisons
Poverty
Affluence
Middle class
Changes over time
5 countries available for Wave II-IX (3 for I-IX)
Is there a trade-off so that reductions in poverty come at the expense of the affluent?Slide3
Modes of redistributionSocial transfers (hits)Pensions (pensions)
Working-aged (hits-pensions)Direct taxes: personal income taxes & social insurance contributionsSecond order effectsRedistribution affects pre-government incomeFocus on pensions
Fiscal
redistribution overviewSlide4
Fiscal redistribution overview
PovertyPoverty line=50% median post-government equivalent income
Example: family of four in the US in 2013 poverty line=$31,955 (50
% of the median income multiplied by the square root of four, or two)
Affluence
Affluence line=200% median disposable income
Example: affluence threshold of $63,010 per equivalent adult or $126,020 for a family of four in US in 2013.
Middle class=share
neither
affluent or
poorSlide5
Fiscal redistribution overview
RedistributionHead count (pre-government income) - Head count (post-government
income)
Absolute
v. relative
reductions
Trends
1980 (LIS Wave II)-2014 (LIS Wave IX)
Means by LIS Wave
computed for
five countries:
Germany
Netherlands
Norway
UK
US
ConclusionsSlide6Slide7
Conclusions: poverty comparisons
Substantial variation in levels of pre- and post-government income poverty
This is also true for the countries in central and Eastern Europe that we recently added.
Reductions
in poverty are accomplished solely through
transfers.
P
ensions
make up the vast majority of transfer income in nearly every country we examine.
Direct
taxes, when examined separately, tend to increase poverty. Slide8Slide9
Conclusions: affluence & middle-class
Rates of affluence vary widely, with largest shares in Estonia and
the
US and smallest
in
Nordic
countries.
Taxes
have the largest redistributive
effect,
reducing the size of the affluent population by about 75
%
Transfers move people into affluence, though in much smaller numbers
Pre-taxes and -transfers, UK had smallest middle class & Denmark the largest.
After taxes and transfers, Sweden had largest middle class.Slide10Slide11Slide12Slide13
Conclusions
: changes in poverty & middle class over time
P
rivate
income poverty has grown steadily since
1980
Most
of these increases
have been
offset by transfer income, especially income from old-age
pensions
The
effect
of pensions in
reducing poverty nearly
doubled
since
1980
The
effect of working-age transfer income on poverty fluctuated, seeming to coincide with the rise and fall of the economic
cycle
Though
small, the effect of taxes varied somewhat as
well
Middle class has been shrinking, though by smaller amount after transfers addedSlide14Slide15Slide16
Conclusions
: change in affluence over timePost-government affluence grew
in the
last 3 decades
The steady
increase in the
percent
affluent
was
due to
taxes, which have
become less redistributive in the last
3 decades
Working
against this trend was the steady increase in transfer income generosity, moving more people into affluence over
time
Once
again, this is especially true for pension
income
At top of income
distribution taxes play a much larger role than transfers; for every person made affluent from
transfers,
two
are
moved out
by taxes
Private sector affluence also grew, but it was not steady and peaked in 1995 before falling and then rising
againSlide17Slide18
Conclusions: Robin Hood Effect
Reductions in poverty came at the expense of the affluent
Lower
poverty rates are associated with larger net reductions and reductions via taxes of the
share considered affluent
Reductions
were associated with larger reductions
from working-aged
transfer income, but not
pensions
Transfer income generosity associated with larger net reduction in poverty overall, both via all transfers, and via pensions
Coefficient suggests that for every one person becoming affluent, two people move out of poverty. In other words, transfers disproportionately favor the poor.Slide19
Thank you