Abstract
ABSTRACTWe estimate the effect of U.S. tax and transfer programs on income inequality in 2012 and show that different methods produce very different results and policy implications. In our main results, the programs reduced the relative Gini index by 14.8% and the absolute Gini index by 20.3%. With other methods, our estimates of the reduction in income inequality range from 10.3% to 49.4%. The two policy options that would be effective in reducing income inequality and that seem most politically feasible are expanding the Earned Income Tax Credit and reducing tax deductions for high-income taxpayers.
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