1.
Income redistribution through
taxes and transfers across OECD
countries
Main findings and policy
implications

2.
Taxes and transfers redistribute income from richer to
poorer households in all OECD countries, lowering inequality
-60
-40
-20
0
20
40
60
1 2 3 4 5 6 7 8 9 10
% of disposable
income
Decile
Transfers Personal income taxes incl. SSC Net transfers
OECD average, working-age population,2014 or latest available
year
Source: Causa and Hermansen (2017)

3.
But the equalising effect of taxes and transfers
varies widely across the OECD
... even for similar levels of inequality before TT
e.g. inequality post-TT lower in Ireland than Greece,
lower in Norway than Japan despite similar pre-TT inequality
Working-age population, 2014 or latest available year
Source: Causa and Hermansen (2017)
0
5
10
15
20
25
30
35
40
45
50
10
15
20
25
30
35
40
45
50
55
60
CHL
KOR
CHE
JPN
NZL
USA
ISR
LVA
EST
CAN
GBR
AUS
ITA
OECD32
ISL
ESP
SWE
NLD
DEU
POL
SVK
NOR
PRT
GRC
CZE
FRA
LUX
AUT
DNK
BEL
SVN
FIN
IRL
MEX
TUR
HUN
PercentageGini coefficient
Inequality before taxes and transfers Inequality after taxes and transfers Redistribution (in %, right axis)

4.
The approach for measuring redistribution
• How is redistribution defined and measured?
By comparing household income inequality (Gini
coefficients) before and after taxes and transfers:
𝑅𝐸 =
𝐺 𝑚𝑎𝑟𝑘𝑒𝑡 − 𝐺 𝑑𝑖𝑠𝑝𝑜𝑠𝑎𝑏𝑙𝑒
𝐺 𝑚𝑎𝑟𝑘𝑒𝑡
• Micro data allow for identifying/separating the respective
inequality-reducing effect of various fiscal instruments:
• Cash transfers
• Insurance (e.g. unemployment & sickness benefits)
• Assistance (e.g. social assistance, means-tested)
• Universal (e.g. family and child benefits)
• Personal income taxes and employee’s SSC

5.
In all OECD countries cash transfers account for
the bulk of redistribution
Share of total redistribution,
working-age population, 2013 or latest available year
Source: Causa and Hermansen (2017)

6.
Size of transfers matter, but countries also differ
in targeting to low-income households
Working-age population, 2014 or latest available year
Source: Causa and Hermansen (2017)
0
5
10
15
20
25
30
35
40
45
50
NZL
AUS
FIN
NLD
DNK
GBR
SWE
DEU
CHE
CAN
MEX
NOR
BEL
ISL
IRL
CZE
OECD
KOR
USA
ISR
SVN
EST
FRA
SVK
HUN
JPN
TUR
AUT
LVA
CHL
POL
LUX
ESP
PRT
ITA
GRC
Percentage
Share of total transfers to bottom quintile Total transfers in % of total market income

7.
Redistribution has declined for almost all available
OECD countries since the mid-1990s…
Source: Causa and Hermansen (2017)
0
10
20
30
40
50
-20
-15
-10
-5
0
5
ISR
SWE
FIN
DNK
NZL
CAN
OECD16
USA
AUS
NLD
DEU
FRA
GBR
JPN
CZE
ITA
NOR
PercentagePercentage points
Change in redistribution Redistribution 2014 or latest year (right axis)
Working-age population, mid-1990s to 2014 or latest available year

8.
The decline in redistribution was largely driven by
transfers, in particular insurance transfers
Source: Causa and Hermansen (2017)
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
FIN ISR SWE 1 DNK AUS NLD CAN CZE USA GBR FRA 2 NOR DEU OECD13
Percentage points
Transfers Personal income taxes incl. SSC Personal income taxes SSC Total
-10
-8
-6
-4
-2
0
2
4
6
8
FIN DNK AUS GBR CZE FRA 2 USA DEU OECD8
Percentage points
Insurance transfers Universal transfers Assistance transfers Total transfers
Working-age population, mid-1990s to 2013 or latest available year
A. Change in total redistribution
B. Change in transfer redistribution by type

9.
Reforms to personal income taxes had a much smaller
impact
Source: Causa and Hermansen (2017)
Change in size and progressivity of PIT and SSCs paid by the working-age
population, mid-1990s to 2013 or latest available year
-10
-8
-6
-4
-2
0
2
4
6
8
ISR
AUS
GBR
FIN
CZE
DNK
SWE1
USA
CAN
FRA2
DEU
NOR
NLD
OECD13
Percentage
points
Size Progressivity Redistribution

10.
• Redistribution has fallen across the OECD, but
why?
• What are the policy drivers of such decline?
• Can we disentangle those from changes in market
income inequality and population structure?
– e.g. more redistribution if higher unemployment, or
more workless families and dual-earner couples
• What are the influence of megatrends in particular
globalisation?
Why are tax-transfer systems doing less
redistribution?

11.
The approach in a nutshell
Two complementary approaches to identify the policy
drivers of changes in redistribution:
1. Empirical regression analysis (Causa et al 2018):
relying on cross-country time-series analysis to identify
major policy drivers of RE among a broad set cyclical
and demographic drivers alongside structural changes;
covers the last two decades
2. Microsimulation analysis (Browne and
Immervoll, forthcoming): relying on
microsimulation analysis to decompose observed
changes in RE into specific TT policy changes at the
country level and “other” changes (i.e. in population
structure and market income inequality); covers a more
recent period

12.
Main findings
• Microsimulation and regression-based analyses suggest that policy changes during
the past two decades have contributed markedly to the decline in redistribution:
 A reduction in the taxation of top incomes and income from capital, as globalisation
has put pressure on governments to shift away from highly mobile tax bases.
This has reduced PIT progressivity in the upper-part of the distribution.
 A decline in the generosity and duration of unemployment-related transfers,
including cuts to social assistance for the long-term unemployed.
 Pension and early retirement reforms to encourage longer working life, for
instance increases in the age of full pension eligibility and reductions in replacement
rates.
• Not all policy changes went in the direction of reducing redistribution:
at lower earnings levels, income taxes have frequently become more redistributive
as taxes have been reduced for low-income working families.

13.
Openness and tax redistribution
-4
-2
0
2
4
6
8
3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8 5.0 5.2 5.4 5.6 5.8 6.0
Openness ratio (in log)
Change in redistribution (%) associated with a 1 percentage point increase in the PIT-to-GDP ratio
Increased economic integration has tended to reduce the redistributive effect of
tax revenue raised from PIT
Note: Regression analysis. This figure shows the estimated effect of the PIT-to-GDP ratio on redistribution as
a function of country’s level of trade openness. Dotted lines indicate confidence intervals.
Source: Causa et al (2018)

14.
-40
-30
-20
-10
0
10
20
30
Unemployment benefits Social assistance Family benefits
Housing benefits Income tax Social security contributions
Note: Microsimulation analysis. This figure shows the change in benefit level as % of median income over a 24 month
unemployment spell. Weighted average over four family types, three different employment records and four different
previous earnings levels, each with and without entitlement to cash housing support.
Source: Browne and Immervoll, forthcoming.
Policy reforms reduced redistribution among workless
families
Change in average benefit level as % of median household income, 2001-15

15.
But policy reforms increased redistribution among
(most) working families
Policy effect by percentile point of the earnings distribution
-3%
-2%
-1%
0%
1%
2%
3%
10 20 30 40 50 60 70 80 90
Gain/lossasapercentageofincome
Earnings percentile
2001-07 'Stimulus' period 'Austerity' period 'Post-austerity' period 2001-15
Note: Microsimulation analysis. The figure shows the unweighted average impact of policy reforms on net incomes
over 28 OECD countries. Within each country, policy impacts are calculated as a weighted average over 8 family types
(single with no children, single with 2 children, couple without children, couple with 2 children, each with and
without entitlement to cash housing support). Percentile points between the nine decile points are linearly
interpolated.
Source: Browne and Immervoll, forthcoming.

16.
Illustrative reform scenarios

17.
Illustrative tax reform scenarios
Increases in the top marginal rate on personal income and employees’ SSC
Increases in the net personal tax on dividend income
0.0
2.0
4.0
6.0
8.0
10.0
12.0
PRT
SVN
GRC
BEL
FIN
SWE
JPN
DNK
DEU
FRA
NOR
GBR
LUX
NLD
ESP
IRL
ISL
KOR
AUT
ISR
CAN
CHE
AUS
ITA
USA
CHL
POL
TUR
SVK
MEX
HUN
NZL
CZE
EST
LVA
%
Closing the gap with the OECD median
Closing the gap with the OECD upper-quartile
0
1
2
3
4
5
6
7
8
IRL
FRA
DNK
KOR
CAN
ISR
GBR
SWE
AUT
BEL
NLD
SVN
USA
FIN
PRT
AUS
ESP
NOR
DEU
CHL
ITA
CHE
JPN
ISL
LUX
POL
TUR
MEX
HUN
CZE
GRC
LVA
NZL
EST
SVK
%
Closing the gap with the OECD median
Closing the gap with the OECD upper-quartile
Reform-driven changes in redistribution for the working-
age population
Note & source: Estimated change
in redistribution from closing the
policy gap with the median or the
upper quartile of OECD countries,
depending on countries’ relative
starting point. The direction of the
policy change is chosen so that the
income redistribution effect is
positive.
Simulations based on regression
results in Causa et al (2018)

18.
Illustrative transfer reform scenarios
Reform-driven changes in redistribution for the working-
age population
Increases in long-term unemployment-related transfers for low-income
married couples (including social assistance)
Increases in public spending on childcare and early education
0
2
4
6
8
10
12
14
16
IRL
CHE
NLD
FIN
LUX
JPN
ISL
NOR
SWE
DEU
FRA
AUT
LVA
SVK
NZL
ISR
AUS
CAN
CZE
GBR
SVN
POL
DNK
EST
BEL
ESP
PRT
KOR
HUN
USA
CHL
GRC
ITA
TUR
%
Closing the gap with the OECD median
Closing the gap with the OECD upper-quartile
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
ISL
SWE
DNK
FRA
NOR
FIN
NZL
HUN
KOR
DEU
ITA
SVN
ESP
IRL
BEL
AUT
ISR
LUX
GBR
CHL
SVK
CZE
POL
NLD
AUS
EST
PRT
JPN
USA
MEX
TUR
%
Closing the gap with the OECD median
Closing the gap with the OECD upper-quartile
Note & source: Estimated
change in redistribution from
closing the policy gap with the
median or the upper quartile of
OECD countries, depending on
countries’ relative starting
point. The direction of the
policy change is chosen so that
the income redistribution
effect is
positive.
Simulations based on
regression results in Causa et
al (2018)

19.
Policy implications
• Given that income inequality has increased both before and after taxes and transfers, the
boost to job creation and employment from make-work-pay policies that have
lowered redistribution has not been sufficient to prevent a rise in inequality.
• Yet tax and transfer policies can do much to promote efficient markets and
inclusive outcomes. Countries can learn from successful reform strategies that have
leveraged policy synergies between equity and efficiency objectives. In particular, carefully
designed in-work taxes and benefits and credits can boost employment levels among target
groups and reduce inequality.
• Policy changes should ensure that redistribution is achieved in the most efficient
way and take into account the rapidly changing context in which policies operate.
Social protection reforms should seek to expand the coverage of unemployment benefits, not
least to address policy challenges raised by changes in the nature of work. Social assistance
reforms should seek to enhance the targeting of cash transfers to low-income households.
• A comprehensive strategy for tackling inequality should include policies
promoting greater equality of opportunities through access to high-quality education,
healthcare, affordable housing and lifelong training programmes.

20.
References
2
0
• Causa, O. and M. Hermansen (2017), “Income redistribution through taxes and
transfers across OECD countries”, OECD Economics Department Working Papers,
No. 1453, OECD Publishing, Paris, http://dx.doi.org/10.1787/bc7569c6-en.
• Causa, O., A. Vindics and O. Akgun (2018), "An empirical investigation on the
drivers of income redistribution across OECD countries", OECD Economics
Department Working Papers, No. 1488, OECD Publishing
Paris, https://doi.org/10.1787/5cb47f33-en.
• Causa, O. , J. Browne, J. and A. Vindicis (2019), “Income redistribution across
OECD countries: main findings and policy implications”, OECD Economics
department Policy Papers No. 23
• Browne, J. and H. Immervoll ,“Have tax and transfer become less inclusive? Results
from a microsimulation analysis”, OECD Social, Employment and Migration
Working Papers, forthcoming.