US tax policy incentivizes gender-normative family formations, discourages female labor, and creates significant horizontal inequality.

In the light of the ongoing scientific discussion on rising inequality, many scholars have called for the welfare state to intervene. However, welfare states differ in many aspects. Among the most influential topics in the literature is the welfare state’s effort to redistribute from rich to poor in order to reduce poverty and inequality. Welfare states undertake redistribution through transfers and taxes (Prasad and Deng, Reference Prasad and Deng2009). Nevertheless, welfare states do not solely redistribute from rich to poor (vertical) (Bergh, Reference Bergh2005) but also between groups, such as gender, race or different family types (horizontal) (Stewart, Reference Stewart2008). Different types of families (defined by marital status and the presence of children) may be treated differently because tax systems provide family type-dependent benefits, including child allowances, marriage premiums or preferential tax schedules. However, if family-related aspects in the tax code systematically benefit those family types that have a higher income (e.g. married couples) compared to those with a lower income (e.g. single parents), then the reduction in income inequality between these family types may be lower than expected. In general, the traditional married family pattern is commonly associated with positional advantages when compared to other family formations (Maldonado and Nieuwenhuis, Reference Maldonado and Nieuwenhuis2015). Married couples tend to have higher disposable household incomes and low poverty rates, while single-parent families are associated with a higher risk of being poor (McLanahan and Percheski, Reference McLanahan and Percheski2008). If marriage is, for instance, associated with substantial institutionalized economic advantages, such as favourable tax brackets, single parents are systematically excluded from those benefits and gains. Hence, the horizontal redistribution system may hint at implicit political and social norms towards certain family formations (McCaffery, Reference McCaffery1999). It is therefore crucial to learn more about the welfare state’s mitigation of horizontal inequality. In other words, the institutionalized structuring of horizontal income inequality between family types matters because social risks are not distributed equally across family types. These policies of horizontal redistribution, however, may encourage de-familialization by enhancing individual autonomy (e.g. single-parent allowance) or promote familialization through strengthening individual dependency on the family (e.g. joint taxation). Familialization tax policies disincentivize labour market participation of secondary earners and are, hence, associated with a traditional division of labour that exacerbates gender inequalities (Dingeldey, Reference Dingeldey2001). The modification of inequality between household types that is due to familialization tax policies is implicitly a question of gender inequality. If family formations with a traditional division of labour are systematically privileged by tax benefit policies, the distributive outcomes are gendered as well. In addition, these policies vary greatly across countries (Bussolo et al., Reference Bussolo, Krolage, Makovec, Peichl, Stöckli, Torre and Wittneben2019). Nevertheless, previous research has widely neglected the significance of tax policy as a means of social policy (Ruane et al., Reference Ruane, Collins and Sinfield2020). Therefore, the present study aims to understand how income taxation modifies horizontal income inequality between family types in a cross-national comparative perspective. To answer my research aim, I examine income inequality between the six most prevalent family types (married without children, married with children, unmarried without children, unmarried with children, single parent, single) of non-retiree households before and after income taxation across welfare states. To this end, I draw on harmonized income and tax data from 30 countries in the Luxembourg Income Study (LIS) and estimate between-family-type Theil indices as measures of inequality before and after deducting income taxes. In order to assess how welfare states’ tax policies structure income inequality between family types, I empirically identify family-related tax policies and evaluate their impacts using linear regression. In the present study I build on the concept of ‘horizontal inequality’ from public and development economics and apply it to fiscal sociology. Broadly, horizontal inequality can be understood as any social, political or economic dimension of inequality between defined groups and thus it allows for adaptation to any structural dimension (Gachet et al., Reference Gachet, Grijalva, Ponce and Rodríguez2019). Hence, horizontal inequality generally refers to inequality between countries, regions or ethnicities (Stewart, Reference Stewart2008). The approach of horizontal inequality between family types emphasizes inequality as an outcome, which is structured by treating different family types differently. Previous research studying income redistribution across welfare states has tended to neglect horizontal inequality and inequity, rendering it the ‘orphan child of tax policy’ (Gravelle and Gravelle, Reference Gravelle and Gravelle2006). On the one hand, the comparative redistribution literature examines tax systems across welfare states in general (Prasad and Deng, Reference Prasad and Deng2009) and studies their inter-individual distributional effort (Kammer et al., Reference Kammer, Niehues and Peichl2012), or its development over time (Caminada et al., Reference Caminada, Goudswaard, Wang and Wang2019). On the other hand, the body of literature interested in horizontal family-type redistribution usually singles out poverty (Brady et al., Reference Brady, Finnigan and Hübgen2017b) and hence only looks at a very specific aspect of inequality. Notably, some recent studies highlighted the significance of tax benefits for redistribution (Coady et al., Reference Coady, D’Angelo and Evans2019). However, few studies directly compare between-family-type inequality, typically through referring to hypothetical households using a microsimulation model (Immervoll, Reference Immervoll2011). In response, the present study aims to bridge the gap between the extensive comparative literature on the effect of taxation on vertical inter-individual inequality and the limited research on between-family-type redistribution. This study contributes to our understanding of familialization tax policy in general and the welfare state’s modification of horizontal income inequality in particular. Assessing the role of taxation as an institutional set-up that assigns additional benefits to certain family patterns is of considerable societal interest. Indeed, if being a member of a certain family type is associated with salient disadvantages, both economic and social well-being are affected. Therefore, I argue that because family patterns have become increasingly diverse in recent decades, inequality between family types has become a significant dimension of horizontal inequality. If different family types are treated differently due to their family status, then redistribution is not just about the individual’s success in the labour market, but his or her embeddedness in family formations as well. In the following, I will briefly discuss previous research regarding family types in general (2.1) before addressing the specific literature on vertical (2.2) and horizontal inequality and redistribution (2.3).