Tax Policy and Income Inequality in the U.S., 1979 – 2007ZEW Discussion Paper No. 14-001 // 2014
We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method allowing us to disentangle the policy effect from changing market incomes. Over the period 1979-2007, the cumulative policy effect aggravated inequality by increasing the income share of the top 20% in contrast to the middle class’ share. The tax policy effect accounts for up to 29% of the total change in inequality; its contribution increases up to 41% if we take into account behavioral responses. While Republican policymakers increased inequality especially at the top, Democrats increased the income share of the bottom 80%.
Bargain, Olivier, Mathias Dolls, Herwig Immervoll, Dirk Neumann, Andreas Peichl, Nico Pestel and Sebastian Siegloch (2014), Tax Policy and Income Inequality in the U.S., 1979 – 2007, ZEW Discussion Paper No. 14-001, Mannheim.