Do transfers lower inequality between households? Demographic evidence from Distributional National Accounts

Abstract

AbstractUsing the Distribution of Personal Income constructed by the Bureau of Economic Analysis for U.S. households (2007–2018), I use a National Accounts framework to show that transfers significantly lower inequality between households by redistributing income from non‐elderly households to elderly households. Social security and Medicare are the most significant transfers, responsible for two third of the overall inequality reduction, substantially more than income‐based transfers for most households. Transfers do not significantly reduce inequality between racial groups overall. As the population ages, transfers have increased as a share of income for all races; yet, inequality persists at a high level.