The Redistributive Effect of Selected Federal Transfer and Tax Provisions

Abstract

Several policy makers have voiced concern, bordering on alarm, over federal budget deficits and growing federal debt over the past decade and have advocated changes in spending and revenue policies to address their concerns. This study examines the redistributive effect of various federal tax provisions and transfer programs using methods that pick up important dimensions of redistribution often missed in analyses. Overall, the results are as expected—both U.S. taxes and transfers reduce income inequality. The redistributive effect, however, could be larger, if the reranking effect were reduced or eliminated. The reranking effect tends to be relatively more important for transfers than for taxes.