Barra Roantree, IFS, London - NERI Seminar presentation slides July 2016
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NERI Seminar Dublin: The Tax & Benefits System from a Lifetime Perspective presentation by Barra Roantree, IFS, London - 13 July, 2016
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Barra Roantree, IFS, London - NERI Seminar presentation slides July 2016
- 1. © Institute for Fiscal Studies A Lifetime Perspective on Taxes, Benefits, Inequality and Redistribution Barra Roantree Nevin Economic Research Institute, Wednesday 13 July 2016
- 2. Key function of tax & benefit system is redistribution © Institute for Fiscal Studies Notes: see Figure 9.1 in IFS Green Budget 2013, Chapter 9. Source: Authors’ calculations using the IFS tax and benefit microsimulation model, TAXBEN, to apply the 2013–14 tax and benefit system to uprated data from the 2010 Living Costs and Food Survey. -£800 -£700 -£600 -£500 -£400 -£300 -£200 -£100 £0 £100 £200 Poorest 2 3 4 5 6 7 8 9 Richest All £perweek Income decile group Net transfers from state by income decile: 2013-14 system
- 3. 0.1.2.3.4.5 Ginicoefficient Gross income Net income … which significantly reduces income inequality © Institute for Fiscal Studies Notes: see Table 3.1 in ‘Redistribution from a Lifetime Perspective’. Both bars show cross-section
- 4. © Institute for Fiscal Studies But individuals’ circumstances vary a lot over time State Average at point in time Ever over 18-waves In a couple 64.4% 87.2% Married 56.0% 80.7% Has child aged 18 or under 28.1% 52.3% Disabled 7.7% 26.8% Unemployed 4.7% 23.9% Source: Table 2.2 from http://www.ifs.org.uk/publications/7130 Note: Authors’ calculations based on BHPS data. Includes all non-dependants aged 16+. The ‘average across waves’ column includes all waves and is weighted using cross-sectional weights. The ‘ever observed’ columns are calculated for individuals observed in all waves from wave 1 to the destination wave and weighted using longitudinal weights. The final two lines (earnings quintiles) only include individuals who are employed in all relevant waves.
- 5. 0200400600 £ per week (2012 prices) 20 30 40 50 60 70 Age Male Female © Institute for Fiscal Studies … and earnings display a strong age profile Source: Figure 2.2 from http://www.ifs.org.uk/publications/7130 Note: Authors’ calculations based on pooled data from all 18 waves of the BHPS. Includes all employed non-dependants aged 16–70. Results are weighted using cross-sectional weights. Gross earnings are before taxes and benefits and are uprated to December 2012 prices. Median gross earnings of employees by age & sex
- 6. Suggests might want to take lifetime perspective • May change our assessment of: – Income inequality & the role of the tax and benefit system – The progressivity of tax and benefit reforms – How policy should be designed to redistribute resources • Most analysis of the tax & benefit system is based solely on cross- sectional information because of data limitations – Levell, Roantree and Shaw (2015) simulated the lifetimes of the baby- boom cohort (1945-54) in order to address some of these questions – Used British Household Panel Survey (BHPS) used to model transitions between consecutive years and Living Costs and Food Survey (LCFS) to adjust simulations to match cross-sectional distributions – Include most personal taxes and benefits, assuming full take-up; exclude benefits of public service spending © Institute for Fiscal Studies
- 7. From a lifetime perspective… The tax & benefit system does less to reduce inequality between people © Institute for Fiscal Studies 0.1.2.3.4.5 Ginicoefficient Cross-section Lifetime Gross income Net income 31% fall 15% fall
- 8. From a lifetime perspective… … as more of what it does is intrapersonal redistribution © Institute for Fiscal Studies 0 .2 .4 .6 .8 1 Share of redistribution that is intrapersonal All Richest 9 8 7 6 5 4 3 2 Poorest Lifetimenetincomedecile Notes: see Figure 3.7 in ‘Redistribution from a Lifetime Perspective’
- 9. From a lifetime perspective… Tax and benefit reforms have a less dramatic effect on inequality © Institute for Fiscal Studies .2.25.3.35 Ginicoefficient 1980/81 1990/91 2000/01 2010/11 2020/21 Tax system Cross-section Lifetime Notes: see Figure 4.1 in ‘Redistribution from a Lifetime Perspective’
- 10. From a lifetime perspective… … and smaller distributional consequences: e.g. 4-year benefit freeze -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% Poorest 2 3 4 5 6 7 8 9 Richest All Percentagechangeinnetincome Net income decile Cross-section Lifetime © Institute for Fiscal Studies Notes: see Figure 4.4 in ‘Redistribution from a Lifetime Perspective’
- 11. © Institute for Fiscal Studies From a lifetime perspective… Key factor: even the lifetime poor spend majority of lives in work 0.2.4.6.81 Proportionemployed Poorest 2 3 4 5 6 7 8 9 Richest All Cross-section Lifetime Notes: see Figure 2.4 in ‘Redistribution from a Lifetime Perspective’
- 12. From a lifetime perspective… Increases to in-work benefits most effective way of redistributing to poor 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0.7% 0.8% 0.9% 1.0% Poorest 2 3 4 5 6 7 8 9 Richest All Percentagechangeinnetincome Net income decile Out-of-work benefits In-work benefits Personal Allowance © Institute for Fiscal Studies Notes: see Figure 5.4 in ‘Redistribution from a Lifetime Perspective’
- 13. From a lifetime perspective… … and increases in higher-rate of income tax for redistributing from rich -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% Poorest 2 3 4 5 6 7 8 9 Richest All Percentagechangeinnetincome Net income decile Cross-section Lifetime © Institute for Fiscal Studies Notes: see Figure 5.5 in ‘Redistribution from a Lifetime Perspective’
- 14. 0.1.2.3.4 Proportionoflifeineachcross-sectionaldecile Poorest 2 3 4 5 6 7 8 9 Richest Poorest lifetime decile Richest lifetime decile © Institute for Fiscal Studies From a lifetime perspective… … driven by strong persistence earnings at the top Notes: see Figure 2.8 in ‘Redistribution from a Lifetime Perspective’
- 15. From a lifetime perspective… Increases in the main rate of VAT are close to neutral -1.4% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% Poorest 2 3 4 5 6 7 8 9 Richest All Percentagechangeinnetincome Net income decile Cross-section Lifetime © Institute for Fiscal Studies Notes: see Figure 5.1 in ‘Redistribution from a Lifetime Perspective’
- 16. What implications does this all have for policy? 1. Policymakers should be clearer about their objectives: trying to alleviate short-run hardship or redistribute lifetime resources? 2. “Working” and “non-working” families is not a useful distinction 3. Policymakers looking to reduce inequality or transfer resources to the lifetime poor might favour doing so through in-work benefits 4. The potential exists to achieve what the existing tax & benefit system does more efficiently © Institute for Fiscal Studies
- 17. © Institute for Fiscal Studies A Lifetime Perspective on Taxes, Benefits, Inequality and Redistribution Barra Roantree