International redistribution is declining---that exacerbates inequality.
Orsetta Causa 17, senior economist at the OECD Economics Department; Mikkel Hermansen, Economist at the Economics Department of the OECD, “Income redistribution through taxes and transfers across OECD countries,” OECD Economics Department Working Papers, No. 1453, 12/21/2017, https://www.oecd-ilibrary.org/docserver/bc7569c6-en.pdf?expires=1689121543&id=id&accname=guest&checksum=0214273C5D6A91FBCFEAAD9F10E49F0D, ajs
- Cash transfers, personal income taxes and social security contributions mitigate slightly more than one quarter of market income inequality among the working-age population, on average across the OECD. Yet this average figure masks a great deal of heterogeneity even among advanced economies: from around 40 per cent of market income inequality reduction in Ireland to around 5 per cent in Chile.
- In all OECD countries, cash transfers account for the largest proportion of redistribution. Personal income taxes play a relatively large role in reducing income inequality in countries that achieve comparatively little redistribution overall like Japan, Korea, Israel and the United States. Social security contributions have a weak yet non-negligible disequalising effect in a number of countries.
- The redistributive effect of transfers is strongly associated with their size and less so with their targeting. Insurance transfers play the largest role in reducing overall inequality because of their large size. Assistance transfers are usually targeted and smaller in size by design, so that their impact on overall inequality is limited in most countries. Still, such transfers can play a key role in ensuring income adequacy and securing minimum living standards among vulnerable groups.
- Across OECD countries over the last two decades, redistribution through taxes and transfers has gone down both on average and in the majority of countries for which data going back to the mid-1990s are available. The bulk of the decline took place from the mid-1990s to the mid2000s. The initial phase of the 2008-09 crisis halted this declining trend, reflecting the cushioning impact of automatic stabilisers and fiscal discretionary measures to address the labour market and social crisis.
- The widespread decline in overall redistribution since the mid-1990s has been primarily associated with a decline in cash transfers redistribution while personal income taxes played a less important and more heterogeneous role across countries. However, extending the transfer coverage to include in-kind transfers may imply a lesser decline in redistribution insofar as part of the rise in public spending on in-kind support, foremost on healthcare, has accrued to workingage households.