Changes in Poverty Reduction and Fiscal Redistribution in C - PowerPoint Presentation

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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

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*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

ConclusionsSlide6
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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. Slide8
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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.Slide10
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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 addedSlide14
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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

againSlide17
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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