Families of Taxation and the Taxation of Families: How Countries Modify Income Inequality Between Family Types

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  In Refereed Roundtable (60 min): Table 12: Economics in Families

Abstract

Welfare state regimes differ in many aspects. Among the most examined categories is the welfare state´s effort in redistributing from rich to poor in order to decrease poverty and inequality. Welfare regimes achieve this redistribution through transfers and taxes. Nevertheless, welfare state regimes do not solely redistribute from rich to poor (vertical redistribution) but also between groups, such as gender, race or different family types (horizontal redistribution). Depending on the household composition and relationship of household members, households benefit differently from tax systems that may provide for instance child allowances, marriage premiums, or other preferential tax schedules. Policies of horizontal redistribution however vary greatly across countries.
Previous research studying income redistribution across welfare regimes usually neglected between group inequalities. This article aims at bridging the gap between the extensive comparative literature on vertical inequality and the limited research on horizontal redistribution. Therefore, this study contributes to our understanding of the consequences of taxation on income inequality between family formations.
I therefore address the following research question: How do income taxation and social security contributions modify income inequality between family types in a cross-national comparative perspective.
To scrutinize income redistribution, I examine income inequality between family types at different stages from gross to net income and across welfare regimes. To this end, I draw on harmonized income, transfer and taxation data from the Luxembourg Income Study (LIS) and display between family type Gini’s, the mean log deviation and the Theil index as measures of inequality at each income stage. In order to assess the welfare states’ “effort” of redistribution between family types, I examine the percentage change in inequality.
Preliminary results indicate substantial variation across countries.
Since horizontal tax redistribution remains highly unnoticed within the social sciences, the present study aims at scrutinizing general associations between taxation and inequality between family types. Due to the increasing diversification of family formations, it is pivotal to deepen our understanding of the welfare states ability in moderating inequality between types of families.

Author

• Manuel Schechtl, Humboldt University Berlin