Redistributive Effect and the Progressivity of Taxes and Benefits
Evidence for the United Kingdom, 1977–2018
Keywords:Kakwani decomposition, inequailty, redistributive effect, progressivity, reranking, benefits, taxes
We apply the Kakwani approach to decomposing redistributive effect into
average rate, progressivity, and reranking components, using yearly data
from the United Kingdom covering the period of 1977-2018. We examine
cash and in-kind benefits, and direct and indirect taxes. In addition, we
highlight an empirical implementation issue – the definition of the reference
(pre-fisc) distribution. Drawing on an innovative counterfactual approach,
our empirical analysis shows that trends in the redistributive effect of cash
benefits are largely associated with cyclical changes in average benefit rates.
In contrast, trends in the redistributive effects of direct and indirect taxes
are mostly associated with changes in progressivity. For in-kind benefits,
changes in the average benefit rate and progressivity each played major roles
at different times.
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