Can Inequality Be Reformed?

Abstract

Three limitations in standard method measurement of income redistribution are considered: (1) redistribution is seen as a matter of global rather than marginal effects, (2) structural effects on the distribution of factor income are not accounted for, & (3) cross-section & life-cycle effects are conflated. Evidence from recent research is introduced, & it is argued that standard method results are reasonably robust in spite of limitations in the methodology. A positive association in advanced industrial companies between tax/transfer policy & income inequality is contended to be a firmly established conclusion, which suggests that if government wants to modify income inequality, it has a tool for so doing in tax & transfer policy, & if it should want to reshape transfers or taxes for other reasons, it must expect distributional consequences.