Income Redistribution Effects Research Articles

A Policy Proposal to Strengthen the Income Redistribution Function of the National Pension Scheme in South Korea: An Analysis of South Korea’s 5th National Pension Comprehensive Plan (Draft)

In this study, we elucidate the income redistribution effects of the proposal to incorporate the Bend Points mechanism of the U.S. OASDI into the Korean National Pension Scheme (BP-KNPS Proposal) through a micro-simulation analysis using individual data from the Korean Labor and Income Panel Study (KLIPS). In addition to examining the effects of introducing the BP-KNPS Proposal into the current National Pension Scheme (NPS), we also consider the impact of this scheme being combined with the 5th National Pension Comprehensive Plan (Draft), announced by Korea’s Ministry of Health and Welfare on 30 October 2023. When the BP-KNPS Proposal is introduced into the current NPS, the Mean Log Deviation (MLD) of the net transfer amount (lifetime pension benefits minus lifetime pension contributions) for regular employees decreases from 0.2022863 to 0.1929960. Similarly, the MLD for self-employed and irregular workers decreases from 0.2046127 to 0.1721433, indicating a reduction in income inequality. Furthermore, when the BP-KNPS Proposal is combined with the 5th National Pension Comprehensive Plan (Draft), the effects are mixed. The proposals to increase the pension contribution rate and adjust the rate increase speed via generation lead to a reduction in income inequality compared to the current NPS when combined with the BP-KNPS Proposal. However, the proposals to raise the pensionable age result in increased income inequality, similar to the outcomes under the current system. This finding suggests that the triple burden identified by literature review—the reduction in benefits due to disparities in contribution periods and life expectancy, and the raised pensionable age—has a greater impact on low-income participants than the inequality-reducing effects of the BP-KNPS Proposal.

Universalism versus residualism: a micro-simulation of alternative income maintenance schemes in South Korea

This article examines the past, present and future of income maintenance schemes in Korea. Historically, income security schemes have been built on the idea of work-centred social insurance supplemented by social assistance. This approach was based on the premise of full employment. While current schemes have achieved institutional completeness and have contributed to alleviating poverty and inequality, they have exhibited limitations in responding to the qualitative shifts of capitalism, leading to welfare blind spots. Various alternatives have been proposed, such as universal basic income (UBI), which aims for equality, and residual Safety Income (SI), which aims for efficiency. The objective of this study is to validate the effects of basic income proposals and SI as alternative income maintenance schemes emerging in Korea. We simulated and compared the poverty alleviation and income redistribution effects of the two alternatives using data from the Survey of Household Finances and Living Conditions (2019~2021). The effects of poverty alleviation and income distribution were determined by analysing the hypothetical changes in absolute and relative poverty rates, as well as the Gini coefficient. The efficiency of benefits was assessed as the ratio of the amount used to reduce the poverty gap out of the total benefit amount. The study found that while SI appeared cost-effective in addressing absolute poverty, UBI was also effective in addressing relative poverty and income inequality.

Federal Business Subsidies: Explosive Growth Since 2014

Federal business subsidies have risen 140 per cent over the nine years ending in 2023–24, compared to 17 per cent over the previous nine years. New programs accounted for over half the growth. Clean economy measures, which rose $7 billion from 2014–15 to 2023–24, were the major contributor to growth in new programs. Even without the new climate change measures, business subsidies would have doubled over the period. Subsidies are likely to reach about $50 billion in 2027–28, which would represent 54 per cent of corporate income tax revenue, up from 42 per cent in 2014–15. Other key findings are: Small and medium-sized enterprises benefit disproportionately from subsidies. These firms account for about half of output in Canada but receive approximately two-thirds of business subsidies. Clean economy measures account for almost a fifth of business subsidies. The agri-food sector receives the second largest share, approximately 15 per cent, which is substantial relative to its four per cent output share. Business subsidies are concentrated in a small number of programs. In the current fiscal year, the top 10 programs (out of almost 150 programs) account for almost 60 per cent of subsidies, and the top 20 for almost 80 per cent. Spending programs account for a surprisingly small share of business subsidies — approximately 30 per cent in the current fiscal year. The tax system is the most important delivery mechanism (45 per cent), while government business enterprises and refundable tax credits account for just over 10 per cent each. What are taxpayers getting in return for the massive spending on subsidies? They are certainly getting more of the activities that are being subsidized and less of the activities that arenot. However, this change in the composition of economic activity won’t necessarily improve well-being because market prices generally allocate society’s scarce resources to their best uses. That is, if markets are functioning properly, subsidies harm rather than help economic performance. On the other hand, if subsidy programs address a market failure, the resulting reallocation of activity may be more efficient. Federal business subsidies that have the potential to improve economic performance, or more generally, to enhance well-being, because they address a market failure accounted for 64 per cent of business subsidies in 2023–24. However, measures accounting for about two-thirds of this spending fail a benefit-cost test — they are not successful in raising Canadians’ real income. These programs should be reviewed to determine if they can be restructured to deliver a positive net benefit. If not, they should be eliminated. Measures accounting for 36 per cent of total spending in 2023–24 are not intended to correct a market failure and are therefore transferring income from one group of Canadians to another while harming economic performance. These measures include general business subsidies and initiatives providing income support. These measures should be carefully reviewed to determine if their income redistribution effects can be justified in the context of the real income loss they cause. Since 2019–20, subsidies implemented to mitigate the impact of climate change and to creategood jobs by subsidizing high-productivity, high-wage industries have grown in importance andwill continue to do so. Climate change mitigation measures should only be implemented if they complement carbon pricing, the government’s main and most cost-effective instrument for reducing emissions. If they meet this minimum condition, climate change mitigation measures should be assessed based on their relative cost-effectiveness in reducing emissions. The proposition that subsidies intended to create good jobs are sound public policy is controversial. The impact of these measures should be tested against the data before additional funds are committed.

Analyzing the health implications of rising income inequality: What does the data say?

AbstractDoes income inequality worsen a country's health outcomes? In this study, we examine the effect of income inequality and redistribution on health outcomes using a panel dataset for a global sample of 154 countries from 1990 to 2020, and the instrumental variable method. The evidence from the empirical analyses revealed that, on average, higher income inequality is associated with poor health outcomes. On the other hand, this study documented that, on average, countries with higher income redistribution have better health outcomes. From regional analyses, we documented that income inequality strongly worsens health outcomes in South Asia, the Middle East and North Africa, sub‐Saharan Africa and the Caribbean and Latin America. We found that education, environmental pollution, health expenditure and GDP per capita are the potential channels through which income inequality affects health outcomes. The findings established in this study suggest that a political environment that supports better income distribution would lead to better health outcomes.

The redistributive effect of the Hungarian flat tax and family allowance system

AbstractThe study examines the income redistribution effects of the Hungarian flat-tax and the recently introduced family allowance scheme. They were done on the basis of people's individual data for 2007, 2011 and 2020, which yields more accurate estimates than the previous studies based on aggregate or survey data. Between 2011 and 2013, progressive taxation was abolished, and a flat income tax was introduced, along with a substantial widening of pre-existing family tax allowances. We find that the tax reform has favoured high-income earners and taxpayers with children, while the main losers were low-income and/or childless workers. While the share of family tax allowances is somewhat lower for the high-income deciles, this effect is in practice negligible, therefore the income tax system can still be considered flat. The family tax allowance scheme favours wealthy families with many children over low-income families with fewer or no children. The biggest winners of the scheme are the taxpayers in the top income decile with three or more children: these 22,000 taxpayers (that is, 2% of all recipients) receive 10% of the total amount of the family tax allowance, and almost a third of the credit allocated to families with three or more children.

The income redistribution effect of social security in China

Based on the data collected by China Household Income Project (CHIP), this paper compares the redistribution effect of China's social security in 2013 and 2018, respectively. The results show that the overall redistribution effect of China's social security has been enhancing. First, social security transfer income has played a moderate role in narrowing income inequality, while social security contribution, especially the medical insurance contribution, has widened the income gap. Second, the redistribution effects of social security on rural residents and migrant workers have increased. Third, social security effectively offset the growing income gap due to market factors in eastern China but failed to realize it in central and western China. Fourth, the narrowing of the urban-rural-migrant gap and regional gap in social security has promoted the enhancement of the overall redistribution effect of social security. Fifth, compared with high-income countries, the redistribution effect of China's social security system operated on a much smaller scale. We conclude by putting forward some policy suggestions.

Research on the New Round of Individual Income Tax Policy Reform

In order to analyze the reform effect of individual income tax policy in 2018, the income redistribution effect of various individual income tax collection schemes is compared through the tracking survey data of China Family Panel Studies. The research shows that the personal income tax reform has reduced the tax burden of taxpayers on the whole. Among the four reform measures, only the implementation of comprehensive income tax has a positive effect on the distribution effect. As the main beneficiaries are mainly high-income people, this round of reform has weakened the redistribution effect on residents’ income. Therefore, measures such as adhering to the direction of comprehensive taxation, prudently reforming the basic reduction of fees and tax rates, subsidizing low-income people and strengthening the supervision of high-income people will help to enhance the redistribution effect of individual income tax.

Beyond normative system boundaries in life cycle assessment: The environmental effect of income redistribution

The current practice for assessing the environmental life cycle impacts of a product system is limited to the activities that respond directly to a change in demand. The revenue resulting from this change in demand is then used to pay for primary factors, such as wages and taxes, while the redistribution of that money is left outside the system boundaries. The aim of this paper is to address this limitation by providing a method in which the second order effects, i.e., the effects of re-spending that money, are included. For that, an income distribution model based on a simplified stock-flow consistent framework was developed. The method is applied in a closed economy consisting of six industries, banks and three household income groups. The dynamics of the income redistribution effects are studied throughout the rounds of (re)distribution, showing that the perturbation has a permanent effect on the economy, from environmental and social perspectives, and major changes occur in the first period of distribution. In addition, the paper also provides insights on the next steps for developing a full-scale model and discussions on the relationship between income distribution and productivity growth.

Income Redistribution Effect of a Shift from Income Deduction to Tax Credit -Discrete Choice Model-Based Simulation Incorporating Labor Supply-

As of 2017, debate is ongoing with respect to the revision of the income deduction as part of the income tax reform. One option under consideration is shifting from the income deduction to a tax credit program.The objective of this shift would be enhancing the income redistribution function of the income tax system by strengthening its progressiveness. In relation to the debate on this matter, although some past research papers discussed how the income redistribution function may be affected by a shift from the income deduction to tax credit, no previous analysis has explicitly taken into consideration changes in labor supply that may be caused by the shift. Therefore, in this paper, we conduct simulation concerning the impact of a shift to tax credit on the income redistribution effect in consideration of labor supply and examine how much the shift is expected to contribute to the enhancement of the income redistribution function. The analysis results suggest the possibility that when fixed cost is a determinant factor as to whether or not individual households supply labor, a shift to tax credit may promote labor supply, especially in view of extensive margin, through the income effect although this effect depends on the size of the tax credit amount. However, it should be kept in mind that in this analysis, we were unable to exclude the income effect due to a tax revenue decline. A shift to transferrable basic deduction under debate at the Tax Commission may also be similar in effect to a shift to tax credit. However, when a spouse fs income is close to zero, the deduction is transferred to the other spouse. As a result, the spouse whose income is close to zero receives no income effect, so this measure fs effect of promoting labor market participation is limited. With all those factors considered, a shift to tax credit may be effective in promoting income redistribution not only through a tax system change itself but also through a change in income distribution due to its effect of promoting labor market participation. However, this paper fs analysis is conducted under various preconditions, such as taking dynamic behavior out of consideration for the convenience of simulation conducted within the limitations of data constraints. Therefore, the conclusion arrived at through the analysis should be looked at with some reservations.

Is Income Inequality Influenced by Financial Knowledge? A Macroeconomic and Longitudinal Analysis

Our objective is to analyze whether financial knowledge influences income inequality. For this purpose, we resort to a new index of financial knowledge that differs from the existing ones in that it is both longitudinal and macroeconomic. We use this index as one of the explanatory variables of the Net Gini Index in our panel data estimations. Based on a sample of 63 countries over the period 2008–2014, our results allow us to conclude that financial knowledge is related to income inequality and that, moreover, this relationship is non-linear. Thus, increases in financial knowledge could reduce income inequality when starting from relatively low levels of such knowledge. However, at a certain threshold, the income redistributive effect of financial knowledge could disappear or even reverse. Even so, national strategies for financial education could be useful to achieve economic equity in those countries where financial knowledge levels are low. In addition, we shed light on the effect that other variables (such as institutional quality or under-education) have on income inequality.

ДОХОДНОЕ НЕРАВЕНСТВО И ОТНОСИТЕЛЬНАЯ БЕДНОСТЬ РОССИЙСКИХ ДОМОХОЗЯЙСТВ: ЕСТЬ ЛИ СВЯЗЬ С ЭКОНОМИЧЕСКИМ РОСТОМ?

The analysis of the relationship between indicators of economic growth, inequality and poverty in dynamics from the beginning of the 90s of the last century to the present is carried out, it is shown that the economic growth that began in the 2000s resulted in a steady downward trend in the level of inequality and poverty in Russia. Based on the Ravallon-Dutt decomposition method, the effects of growth and income redistribution on changes in the level of relative poverty and inequality between 2000 and 2017 are calculated. The presented approach allows us to identify problem areas of social policy and indicate the directions for their elimination.

Welfare implications of mitigating investment uncertainty

This study explores the welfare implications of mitigating investment uncertainty in the context of Easley and O’Hara (Rev Financ Stud 22:1817–1843, 2009) While one may expect welfare gains by encouraging participation in financial markets by ambiguity-averse investors, we formally show that it hurts other investors and thus is not Pareto-improving without appropriate income transfers. We also examine the welfare effects of income redistribution among heterogeneous investors and government spending on investor education.

The Impact of Financing Health Services on Income Inequality in an Unequal Society: The Case of South Africa.

BackgroundEquitable health financing is crucial to attaining universal health coverage (UHC). Health financing, a major focus of the National Health Insurance in South Africa, can potentially affect income distribution.ObjectiveThis paper assesses the impact of financing health services on income inequality (i.e. the income redistributive effect [RE]) in South Africa.MethodsData come from the nationally representative Income and Expenditure Survey (2010/2011). A standard approach is used to estimate and decompose RE for the major health financing mechanisms (taxes, insurance and out-of-pocket health spending) into the sum of the vertical effect (i.e. the extent of progressivity or regressivity), horizontal inequity (i.e. the extent to which ‘equals’ are not treated equally) and reranking effect (i.e. the extent to which individuals or households change ranks after paying for health services).ResultsFinancing health services through direct taxes (RE = 0.0072, P < 0.01) and private health insurance (RE = 0.0103, P < 0.01) significantly reduce income inequality, while indirect taxes (RE = −0.0025, P < 0.01) and out-of-pocket health spending (RE = −0.0009, P < 0.01) lead to significant increases in income inequality. Although private health insurance contributions may reduce income inequality, enrolees are only a small minority, mainly the rich. Also, total taxes (RE = 0.0048, P < 0.01) and total health financing (RE = 0.0152, P < 0.01) contribute to significant reductions in income inequality, with the vertical effect dominating.ConclusionTaxes that contribute to reducing income inequality hold promise for equitable health financing in South Africa. The results are relevant for and support the current National Health Insurance policy in South Africa and the global move towards UHC.

Who Benefits from the Housing Provident Fund System in China? An Analysis of the Internal Rate of Return for Typical Employees with Different Incomes

The Housing Provident Fund System (HPFS) was established in China in the 1990s as a welfare program to offer low-cost loans and encourage the purchasing of houses. However, there has been some controversy over the income redistribution effect of HPFS. Previous studies focused on the effect of low-interest-rate loans but ignored the effects of tax exemptions and low-interest-rate deposits. This paper introduces a lifetime cash flow model which considers the effects of low-interest-rate loans, tax exemptions, and low-interest-rate deposits together. It compares the internal rate of return (IRR) for typical employees with different incomes in four situations: whether or not HPFS participation and whether or not house purchasing. We found that the IRRs of the typical low-income HPFS participants who buy houses with HPFS loans were lower than the IRRs of non-participants who buy houses with commercial mortgages without HPFS participation. For the typical middle-income employees, there is not much difference in IRR between the two situations. Only the typical high-income employees can benefit from HPFS participation, and this is mostly due to the effect of the tax exemptions, rather than the effect of low-interest-rate loans. Increasing the coverage of HPFS and HPFS loans among low-income employees will not improve the income redistribution effect of HPFS.

Income Redistribution Effect of Raising the Overall Planning Level of Basic Endowment Insurance for Urban Employees in China

It is the focus of social security system reform at this stage in China to promote the transition of basic endowment insurance for urban employees from provincial overall planning level to national overall planning level, which is of great significance to the realization of fair and efficient of economic development. Based on the micro data of China Household Finance Survey 2017 (CHFS2017), this paper first establishes a personal wage prediction model to estimate the distribution of personal lifetime wage income, then designs two pension collection and payment plans of “direct national overall planning” and “indirect national overall planning”, and establishes an actuarial model of pension to calculate the present value of personal lifetime contribution, lifetime claim and lifetime real wage income after pension adjustment under different overall planning levels. Finally, the income gap index and net benefit rate index are used to measure the change of the whole income gap and the transfer of pension benefits. The results show that on the whole, the basic endowment insurance for urban employees does have a significant income redistribution effect, and its income adjustment effect is positively related to the overall planning level and intensity of the system. Under the current provincial overall planning level, the income redistribution effects of the system are as follows: the high-income group transfers to the low-income group, the young generation to the elderly generation, the female insured person to the male insured person, and the non-state-owned economic unit to the state-owned economic unit. With the improvement of the overall planning level and strengthening of intensity, there are differences in the changes of benefits among different groups.

Global redistribution of income and household energy footprints: a computational thought experiment

Non-technical summary Global income inequality and energy consumption inequality are related. High-income households consume more energy than low-income ones, and for different purposes. Here, we explore the global household energy consumption implications of global income redistribution. We show that global income inequality shapes not only inequalities of energy consumption but the quantity and composition of overall energy demand. Our results call for the inclusion of income distribution into energy system models, as well as into energy and climate policy. Technical summary Despite a rapidly growing number of studies on the relationship between inequality and energy, there is little research estimating the effect of income redistribution on energy demand. We contribute to this debate by proposing a simple but granular and data-driven model of the global income distribution and of global household energy consumption. We isolate the effect of income distribution on household energy consumption and move beyond the assumption of aggregate income–energy elasticities. First, we model expenditure as a function of income. Second, we determine budget shares of expenditure for a variety of products and services by employing product-granular income elasticities of demand. Subsequently, we apply consumption-based final energy intensities to product and services to obtain energy footprint accounts. Testing variants of the global income distribution, we find that the ‘energy costs’ of equity are small. Equitable and inequitable distributions of income, however, entail distinct structural change in energy system terms. In an equitable world, fewer people live in energy poverty and more energy is consumed for subsistence and necessities, instead of luxury and transport. Social media summary Equality in global income shifts household energy footprints towards subsistence, while inequality shifts them towards transport and luxury.

Income Redistributive Effects (IREs) on Poverty and Inequality in Latin America: A Cross-Country Analysis

This paper analysed the effects of taxes and benefits on income inequality and poverty in Latin America. The study used an exploratory research design, with both linear and nonlinear regression models. The paper found that both direct and indirect taxes have no direct influence on income inequality and poverty in a short-term. Significantly, the social spending is found to reduce both poverty and inequality. The paper concluded that, taxes –benefits system in Latin America is effective to eradicate income inequality and poverty, but it is ineffective to reduce the poverty rate and income inequality amongst the countries. The paper recommended that the countries in Latin America should set the policy priority on increasing the social spending in term of direct benefits, in-kind benefits and contributory pensions and subsidies as found to have a linear relationship with the income inequality and poverty.

Health care financing and income inequality in Nigeria

PurposeThe purpose of this paper is to decompose the inequities induced by the Nigerian health care financing sources and their effect on the income distribution. Inequities in health care financing sources are of immense policy concern particularly in developing countries such as Nigeria, where high-level income inequality exists, and the cost of medical care is generally financed out-of-pocket (OOP) due to limited access to health insurance.Design/methodology/approachThe Duclos et al. decomposition model provided the theoretical framework for the study. Data were obtained from two waves of the Nigeria General Household Survey (GHS) panel, 2012–13 and 2015–16. The analysis covered 3,999 households in 2012–13 and 4,051 households in 2015–16. Two measures of health care financing: OOP payment and health insurance contribution (HIC) were used. The ability to pay measure was household consumption expenditure.FindingsThe major inequity issue induced by the OOP payments was vertical inequity. HICs created the problems of vertical inequity, horizontal inequity and reranking among households. Overall both health care financing options were associated with the worsening of income inequality both at the national and sectorial levels in the country. The operations of the NHIS need to be improved to ensuring improved health care coverage for the poor.Originality/valueThis paper fulfills an identified need to determine the income redistributive effects (REs) of the social health insurance (SHI) contribution at the national, urban and rural locations overtime.

Voting over selfishly optimal tax schedules: Can Pigouvian tax redistribute income?

AbstractThis paper studies pairwise majority voting over selfishly optimal nonlinear income tax schedules proposed by a continuum of individuals who differ in privately observable skills and make consumption comparisons, which creates a negative positional externality. It shows that the tax schedule preferred by the median skill type will win the voting contest. Given a reference consumption defined as the average consumption in the population, all skills face the same Pigouvian tax rate in the utilitarian optimum, whereas in selfish optima high skills face a Pigouvian tax rate larger than that facing low skills, generating a novel income redistributive effect. Under a constant elasticity of labor supply, two more results are obtained. First, for Pareto, Champernowne, Weibull, and lognormal skill distributions, the selfishly optimal tax schedule facing high (low) skills tends to be more progressive when the bottom‐skill's (top‐skill's) status concern intensifies. Second, it identifies the conditions under which, in the voting equilibrium, high skills face higher marginal tax rates while low skills face lower ones than what they face in the utilitarian optimum.

The Income Redistribution Effect of Government Transfer Programs

The use of the trajectory of the Gini coefficient of total income formed by the increase in transfer income combined with the minimum Gini coefficient curve enables us to provide a comprehensive examination of the effect of government income redistribution policies, measure the efficiency of transfer income for income redistribution, and redress the methodological defects of research using the MT index and Gini coefficient decomposition. The findings of our new method of estimation show that China’s social security expenditure can reduce the income gap, but its efficiency in terms of redistribution is relatively low and has already passed the turning point of the Gini coefficient trajectory, resulting in some people being “over-allocated.” Readjusting the distribution of governmental transfers can help lower the Gini coefficient of residents’ total income.