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on Public Economics |
| By: | Roberto Machado; José Zuloeta |
| Abstract: | This paper estimates short-run and long-run elasticities of tax revenue with respect to GDP in eight Latin American countries using quarterly data. Taxes considered are corporate income tax (CIT), personal income tax (PIT), value-added tax (VAT), and overall taxes. Results indicate that long-run elasticities are statistically and economically larger than 1, whereas short-run elasticities appear not to be statistically different from zero in the majority of cases. Tax systems seem very elastic in Argentina, Colombia, Ecuador, Peru, and Venezuela. The CIT exhibits the largest estimated long-run elasticity in most countries. Focusing on short-run elasticities that show statistical significance, only the CIT in Colombia and the PIT in Brazil and Colombia show larger fluctuations over the business cycle than growth potential in the long run. Overall, our results indicate that tax systems in Latin America are significantly more elastic than previous estimations. |
| Keywords: | Economics :: Economic Development & Growth, Economics :: Production & Business Cycles, Tax revenue, Elasticities, Business cycles, |
| JEL: | E32 H24 H25 H29 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:76398&r=pbe |
| By: | Shaikh, Salman |
| Abstract: | This study used the simple co-integration technique to estimate the direct tax buoyancy for Pakistan economy for the 36 year period starting from FY-1974 to FY-2009. The buoyancy estimated was more than unity which represents slight improvement over previous estimates in past studies. The study attributes the improvement to factors such as expansion of tax base, diversification and deepening of manufacturing sector and structural change in the economy with the size of agriculture sector output shrinking as proportion of GDP and the proportion of direct tax increasing in proportion to total taxes gradually. The study recommends certain policy recommendations which include increase in tax base, reduction in tax rates, reducing tax evasion opportunities by taxing all sources of income and by increasing documentation through compulsory show of tax identity in making most material transactions. |
| Keywords: | Taxes; Fiscal Policy; Public Finance; Tax Buoyancy; Tax Elasticity; Tax to GDP Ratio |
| JEL: | E62 H2 H3 |
| Date: | 2012–04–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42498&r=pbe |
| By: | Mireille Chiroleu-Assouline; Mouez Fodha |
| Abstract: | European countries have increased their use of environmental tax instruments by designing new tax bases. But, many countries have to face the opposition of the public opinion, for fear of the distributive consequences of these environmental tax reforms. This paper sheds light on the distrib-utive consequences of environmental tax policies when households are heterogeneous. The objective is to assess whether an environmental tax reform could be Pareto improving, when the revenue of the pollution tax is recycled by a change in the labor tax properties. We show that, whatever the degree of regressivity of the environmental tax alone, it is possible to design a recycling mechanism that renders the tax reform Pareto improving, by simultaneously decreasing the average rate of the wage tax and increasing its progressivity. |
| Keywords: | Environmental tax reform,heterogeneity, welfare analysis, tax progressivity. |
| JEL: | D60 D62 E62 H23 |
| Date: | 2012–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:eus:ce3swp:0312&r=pbe |
| By: | Andrew A. Samwick |
| Abstract: | Approximately 10 percent of school-age children in the United States are enrolled in private schools, relieving the financial burden on public school systems, and the taxpayers who support them, of the cost of their education. At present, the tax code does not allow families who provide this financial relief an income tax deduction, even though such relief is a gift to governments for exclusively public purposes and thus analogous to a charitable donation. Using the Public Use Microdata Sample of the American Community Survey and the NBER Internet Taxsim calculator, this paper estimates that granting families who enroll their children in private schools an income tax deduction equal to the per-pupil expenditures in their public school district would cost the federal government an average of $7.75 billion per year over the 2006 – 2010 period. This amount is less than one percent of federal income tax revenues. Because private school enrollment, public school expenditures, the likelihood of itemization, and marginal tax rates increase with taxpayer income, the dollar benefits of this change are positively related to income. At the margin, high-income taxpayers would receive about 35 cents in federal and state tax relief for each dollar of per-pupil expenditures foregone. |
| JEL: | H24 I22 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18525&r=pbe |
| By: | Audun Langørgen (Statistics Norway) |
| Abstract: | Many countries apply cost-equalization and/or fiscal capacity equalization formulas to enable sub-national governments to provide comparable service standards at comparable tax rates. This paper demonstrates how measures of expenditure needs and fiscal capacity can be derived from a structural model of local government spending and taxing behavior. The structural parameters are shown to provide the information required to implement equalization according to the principle of horizontal equity. |
| Keywords: | Fiscal Equalization; Expenditure Needs; Fiscal Capacity; Structural Modeling |
| JEL: | H71 H72 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:715&r=pbe |
| By: | Arnaldur Sölvi Kristjánsson (University of Iceland and Toulouse School of Economics); Peter J. Lambert (University of Oregon) |
| Abstract: | The structural progression of an income tax schedule measures how liabilities change with changes in the income being taxed. This paper extends the measurement of structural progression to a pure-form dual income tax (DIT) system, which combines progressive taxation of labour income with proportional taxation of income from capital at a lower rate. Firm links are obtained between structural progression and revenue responsiveness for a DIT, and we demonstrate how structural progression measures can aid in redistributive analysis, using Nordic data to highlight problems which can stem from pretax distributional changes. We conclude with an assessment of the new theoretical and empirical work that is now required, much of which will be data driven. |
| Keywords: | personal income tax, dual income tax, structural progression. |
| JEL: | D31 D63 H23 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2012-269&r=pbe |
| By: | Thomas Piketty; Emmanuel Saez |
| Abstract: | This paper reviews recent developments in the theory of optimal labor income taxation. We emphasize connections between theory and empirical work that were initially lacking from optimal income tax theory. First, we provide historical and international background on labor income taxation and means-tested transfers. Second, we present the simple model of optimal linear taxation. Third, we consider optimal nonlinear income taxation with particular emphasis on the optimal top tax rate and the optimal profile of means-tested transfers. Fourth, we consider various extensions of the standard model including tax avoidance and income shifting, international migration, models with rent-seeking, relative income concerns, the treatment of couples and children, and non-cash transfers. Finally, we discuss limitations of the standard utilitarian approach and briefly review alternatives. In all cases, we use the simplest possible models and show how optimal tax formulas can be derived and expressed in terms of sufficient statistics that include social marginal welfare weights capturing society's value for redistribution, behavioral elasticities capturing the efficiency costs of taxation, as well as parameters of the earnings distribution. We also emphasize connections between actual practice and the predictions from theory, and in particular the limitations of both theory and empirical work in settling the political debate on optimal labor income taxation and transfers. |
| JEL: | H21 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18521&r=pbe |
| By: | Paolo Pellizzari (Department of Economics, University Of Venice Cà Foscari); Dino Rizzi (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | In this paper we present a model of tax compliance with heterogeneous agents who maximize their individual utility based on income and the conjectured level of per capita public expenditure. We formally include psychological drivers in this model. These drivers affect individual behavior, such as risk aversion, together with appreciation of public expenditure, expectations about peers’ compliance and a natural inclination to comply, all of which we summarize in a quality termed “citizenship”. The enforcement system, based on random inspections, is standard and only partially known to agents. The agent-based model is simulated under a variety of settings, representing different “societies”. We use the artificial data produced by the model to estimate the effects of taxpayers’ traits on personal tax behavior and to build a compliance societal slippery slope. At the individual level, we find a positive dependence of compliance on all variables, with the significant exception of the tax rate, which has a negative impact. As far as societies are concerned, we show how aggregate tax compliance depends on composite indices of citizenship and power, and we find that the former is more important than the latter. |
| Keywords: | Tax evasion, public expenditure, agent-based models |
| JEL: | H26 H40 C63 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2012_24&r=pbe |
| By: | Nora Lustig (Tulane University and CGD and IAD); George Gray-Molina (UNDP, New York, USA); Sean Higgins (Tulane University); Miguel Jaramillo (GRADE, Lima, Peru); Wilson Jiménez (Instituto Alternativo, La Paz; Bolivia); Veronica Paz (Instituto Alternativo, La Paz; Bolivia); Claudiney Pereira (Tulane University); Carola Pessino (CGD, Washington, DC and CEMA, Buenos Aires, Argentin); John Scott (CIDE and CONEVAL, Mexico City, Mexico); Ernesto Yañez (Instituto Alternativo, La Paz; Bolivia) |
| Abstract: | We apply a standard tax and benefit incidence analysis to estimate the impact on inequality and poverty of direct taxes, indirect taxes and subsidies, and social spending (cash and food transfers and in-kind transfers in education and health). The extent of inequality reduction induced by direct taxes and transfers is rather small (2 percentage points on average) especially when compared with that found in Western Europe (15 percentage points on average). What prevents Argentina, Bolivia and Brazil from achieving similar reductions in inequality is not the lack of revenues but the fact that they spend less on cash transfers –especially transfers that are progressive in absolute terms--as a share of GDP. Indirect taxes result in that net contributors to the fiscal system start at the fourth, third and even second decile on average, depending on the country. When in-kind transfers in education and health are added, however, the bottom six deciles are net recipients. The impact of transfers on inequality and poverty reduction could be higher if spending on direct cash transfers that are progressive in absolute terms is increased, leakages to the nonpoor are reduced and coverage of the extreme poor by direct transfer programs is expanded. |
| Keywords: | fiscal incidence, inequality, poverty, taxes, social spending, Latin America. |
| JEL: | D31 D63 H11 H22 H5 I14 I24 I3 O15 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2012-264&r=pbe |
| By: | Marisa Bucheli (Economics Department, Universidad de la Republica, Uruguay); Nora Lustig (Tulane University (Department of Economics; Stone Center for Latin American Studies and CIPR) and Center for Global Development and Inter-American Dialogue.); Maximo Rossi (Economics Department, Universidad de la Republica, Uruguay); Florencia Amábile (Economics Department, Universidad de la Republica, Uruguay) |
| Abstract: | How much redistribution does Uruguay accomplish through social spending and taxes? How progressive are revenue collection and social spending? A standard fiscal incidence analysis shows that Uruguay achieves a nontrivial reduction in inequality and poverty when all taxes and transfers are combined. In comparison with other five countries in Latin America, it ranks first (poverty reduction) and second (inequality reduction), and first in terms of poverty reduction effectiveness and third in terms of overall (including transfers in kind) inequality reduction effectiveness. Direct taxes are progressive and indirect taxes are regressive. Social spending on direct transfers, contributory pensions, education and health is quite progressive in absolute terms except for tertiary education, which is almost neutral in relative terms. |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2012-263&r=pbe |
| By: | Sergio Galletta (Istituto di economia politica (IdEP), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera); Mario Jametti (Istituto di economia politica (IdEP), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera) |
| Abstract: | We explore how the vertical structure of direct democracy in a federal context affects expenditure decisions of sub-central governments. In so doing we revisit previous research on the effect of direct democratic institution on public policies. Particularly, the effect of upper-level (state) existence of direct democratic control on local expenditure. Empirically we exploit the fact that both states (cantons) and local governments (municipalities) enjoy a high autonomy in setting their degree of direct democracy. This allows us to take into account vertical differences between institutions, i.e. we can distinguish the effect of state direct democracy on local expenditures for municipalities with and without own direct democratic instruments. Considering 119 municipalities belonging to 22 Swiss cantons for the period 1993-2007 we highlight that municipalities without fiscal referenda belonging to cantons with fiscal referenda present higher expenditure, while the effect is much reduced and statistically significantly different for municipalities that also avail of referenda. |
| Keywords: | Direct Democracy, Local Public Expenditure, Vertical Interaction |
| JEL: | H72 H77 D72 D78 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:lug:wpaper:1207&r=pbe |
| By: | Mitesh Kataria (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Natalia Montinari (Max Planck Institute of Economics, Strategic Interaction Group, Jena) |
| Abstract: | Researchers frequently studied the casual relationships of other-regarding preferences by applying experimental methods in bilateral settings (e.g., dictator game and ultimatum game). We use a framed experiment on taxes to study preferences for redistribution in a multi-person setting. We find presence of heterogeneous preferences with a substantial share of tax rate choices in line with both payoff maximization and other-regarding preferences. Notably, our data is not consistent with inequality aversion but points to other forms of other-regarding preferences, as fairness and altruism. By manipulating how subjects are assigned to a given level of pre-tax income, we vary the individual entitlements. We find a difference in the willingness to redistribute income when comparing the treatment where pre-tax income is assigned by relative performance in a production task (a general knowledge quiz) to the treatment where pre-tax income is assigned by luck. We do not find any significant difference in comparison to the intermediate treatment where pre-tax income is assigned by a combination of luck and performance. The perception of a "fair" tax is different depending on whether subjects' pre-tax income is below or above average, which is in line with a fairness bias. Finally, subjects not knowing whether their pre-tax income is below or above the average when choosing the tax rate behave as if they were more other-regarding. |
| Keywords: | Redistribution, Entitlements, Fairness Bias, Risk, Framed Tax Experiment |
| JEL: | D6 C9 |
| Date: | 2012–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2012-061&r=pbe |
| By: | Ranis, Gustav (Yale University) |
| Abstract: | Vertical decentralization, either at the deconcentration, delegation or, more rarely, the devolution level, has been instituted in most countries of Sub-Saharan Africa. It usually has the effect of increasing the quantity as well as the quality, in terms of health and education, of public goods. More neglected in the literature is the issue of horizontal decentralization, shifting the decision-making power from the central ministry of finance to the ministries of education and health, as well as strengthening the legislative and judicial branches of government. We examine the relationship between horizontal decentralization with its important ethnic dimension and vertical decentralization. Local governments are accountable to the center under vertical and to democratic forces and civil society under horizontal decentralization. Smaller local units are more likely to be more homogeneous ethnically, leading to a larger quantity and higher quality of public goods. |
| JEL: | O11 O17 O18 O55 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:yaleco:108&r=pbe |
| By: | Gerhard Glomm; Juergen Jung; Chung Tran |
| Abstract: | We study the macroeconomic and welfare effects of decumulating government debt in an overlapping generations model with skill heterogeneity and productive and non-productive government programs. Our results are: First, in the small open economy model calibrated to Greece, the spending-based austerity reform dominates the tax-based reform with respect to income effects but not with respect to the welfare effect. A mixed reform combining the tax-based and spending-based measures results in the largest welfare effects of up to 1.8 percent of pre-reform consumption. Second, the welfare effects vary significantly along the transition to the post reform steady state, depending not only on fiscal austerity measures, but also on skill types, working sectors and generations. When consumption taxes adjust the aggregate welfare effects are positive but the current old and middle age generations experience welfare losses while current young workers and future generations are beneficiaries. Third, interactions between fiscal distortions and the risk premium as well as accessibility to international capital markets strongly influence the effects of fiscal austerity. Larger growth and welfare effects are observed when the risk premium is larger than zero and when access to international capital markets is restricted. |
| JEL: | E21 E63 H55 J26 J45 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2012-594&r=pbe |
| By: | Arze del Granado, F. Javier; Martinez-Vazquez, Jorge; McNab, Robert M. |
| Abstract: | The theoretical and policy literature on decentralization has long asserted since Oates (1972) that decentralized governance increases allocative efficiency in the public sector. But, despite the colossal growth in the literature on decentralization and fiscally decentralized systems in the real world over the past four decades, this hypothesis has gone untested, largely because of the difficulties of deriving measures of allocative efficiency. In this paper we offer an indirect test of the allocative efficiency hypothesis by examining how decentralized governance affects the expression of preferences for public goods. Specifically, we examine the relationship between fiscal decentralization and the functional composition of public expenditures. Using a distance-sensitive representative agent model, we hypothesize that higher levels of fiscal decentralization induce agents to demand increased production of publicly provided private goods. We test this hypothesis using an unbalanced panel data set of 59 developed and developing countries covering a 30-year period. We find that expenditure decentralization positively and significantly influences the share of health and education expenditures in the consolidated government budgets; this finding is robust across multiple estimators. Decentralized governance thus appears to alter the composition of public expenditures towards publicly provided private goods. |
| Keywords: | Fiscal Decentralization; Functional Composition; Pure Public Goods; Publicly Provided Private Goods; Education; Health |
| JEL: | H50 H30 |
| Date: | 2012–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42459&r=pbe |
| By: | Joël Hellier (EQUIPPE, Univ. of Lille 1 and LEMNA, Univ. of Nantes); Stéphane Lambrecht (EQUIPPE, Univ. of Lille 1 and Univ. of Valenciennes) |
| Abstract: | We review the literature on the links between inequality, growth and welfare. Three questions are addressed: 1) What is the impact of growth and development on inequality? 2) What is the impact of inequality on growth, development and welfare? 3) What is the impact of proequality public policies upon growth and welfare? As regards the first question, the theoretical and empirical literature that analyses Kuznets hypothesis is firstly reviewed. The answer to the question of the impact of inequality on growth is twofold. Firstly, inequality fosters growth when this is based on capital accumulation, but it hinders growth when growth is based on human capital accumulation and when inequality-related social disturbances are considered. Identically, pro-equality public policies may engender very different effects upon growth depending on their influence on factor accumulation. These mixed impacts may explain the ambiguous findings provided by the empirical literature. If most of the estimates carried out in the 1990s seemed to confirm that inequality was damaging for growth, the 2000s empirical literature reconsiders this diagnosis but remains inconclusive. |
| Keywords: | Inequality, Growth, Welfare. |
| JEL: | D31 D63 I38 O15 O4 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2012-258&r=pbe |
| By: | Nora Lustig (Tulane University); Sean Higgins (Tulane University) |
| Abstract: | Taxes and transfers can have significant impacts on poverty and inequality. All standard measures are by definition anonymous in the sense that we do not know the identity of winners and losers. That a given combination of taxes and transfers makes some of the poor poorer, however, may be important information to incorporate into a fiscal incidence analysis. The directional mobility literature provides a useful framework to identify which individuals are adversely/favorably impacted by a particular policy. This paper introduces a “fiscal mobility matrix” to identify winners and losers. We show that taxes and transfers can lower inequality and poverty (including the severity of poverty) but still make a subgroup of the poor worse off. We use Brazilian data to illustrate how indirect taxes make around 11 percent of the non-poor poor, 15 percent of the moderate poor extremely poor, and 4 percent of the extremely poor “ultra-poor” despite any cash transfers they receive, even when standard poverty and inequality indicators decline and overall taxes are progressive. |
| Keywords: | fiscal incidence, taxes and transfers, inequality, poverty, redistribution, mobility. |
| JEL: | D31 H22 H53 I32 I38 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2012-265&r=pbe |
| By: | Shuyun May Li, Solmaz Moslehi, Siew Ling Yew |
| Abstract: | This paper constructs a simple overlapping generations model to examine how the choice of public and private health expenditure is affected by preferences and economic factors under majority voting. In the model,agents with heterogeneous income decide how much to consume, save, and invest in private health care, and vote for the income tax to be used to finance public health. Agents survival probabilities are endogenously determined by a CES composite of public and private health expenditure. For the two special cases that public and private health are complements or perfect substitutes, we show that the voting equilibrium is unique and locally stable. For the general case, we calibrate the model to Canadian data to conduct a quantitative analysis.Our results suggest that the public-private mix of health expenditure is quite sensitive to the degree of substitutability between private and public health and the relative e¤ectiveness of public and private health. Using a sample of advanced democratic countries, we further infer these two parameters and construct the shares of public health in total health expenditure for each country, and find that the predicted values match the data quite well. |
| Keywords: | Public-private mix, Health expenditure, Majority voting, Overlapping generations model |
| JEL: | D7 H51 I1 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:1157&r=pbe |
| By: | Roberto Dell'Anno (Department of Economics and Statistics, University of Salerno); Désirée Teobaldelli (Department of Law, University of Urbino “Carlo Bo”) |
| Abstract: | This paper puts forward a framework for evaluating the effects of governmental decentralization on the shadow economy and corruption. The theoretical analysis demonstrates that decentralization exerts both a direct and an indirect impact on the shadow economy and corruption. Firstly, decentralization helps to mitigate government-induced distortions, thus limiting the extent of corruption and the informal sector in a direct way. Secondly, in more decentralized systems, individuals have the option to avoid corruption by moving to other jurisdictions, rather than going underground. This limits the impact of corruption on the shadow economy and implies that decentralization is also beneficial in an indirect way. As a result, our analysis documents a positive relationship between corruption and the shadow economy; however, this link proves to be lower in decentralized countries. To test these predictions, we developed an empirical analysis based on a cross-country database of 145 countries that includes different indexes of decentralization, corruption and shadow economy. The empirical evidence is consistent with the theory. Results are robust and significant even after controlling for the endogeneity bias. |
| Keywords: | Shadow economy, Federalism, Decentralization, Corruption. |
| JEL: | O17 H77 H11 D73 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:urb:wpaper:12_13&r=pbe |
| By: | Rubén Hernández-Murillo |
| Abstract: | In this paper we study competition among non-benevolent local governments for mobile firms and evaluate the consequences of imposing alternative regimes of competition. In our model politicians act as regulators that offer incentives in the form of recommended output levels and socially-costly transfers to induce firms, which have private information on their costs, to operate in their community. Politicians fail to estimate correctly the social costs of public funds and competition drives firms' information rents to higher levels than under a cooperative regime. Therefore, from the perspective of a benevolent federation, aggregate welfare is reduced and constitutional constraints on the competition process may be desirable. Imposing a system of coarser policy instruments improves welfare, even when politicians are benevolent, because it reduces the costly rents that are granted to firms in equilibrium –at the cost of distorting output choices. We find that gains from resorting to constitutional constraints are maximal when communities are identical, but if the extent of asymmetry between locations increases, the advantages of the constrained regime decrease and can be overturned, because it prevents the more productive locations from attracting the more efficient firms. |
| Keywords: | Fiscal policy ; Public goods |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2012-052&r=pbe |
| By: | Jürgen Faik (FaMa – Neue Frankfurter Sozialforschung) |
| Abstract: | This paper is concerned with the interplay between demography and macroeconomics on one hand and macroeconomics and income inequality on the other hand. For this purpose, several estimation equations are derived by econometric methods (on the empirical basis of the 1984-2010 German Socio-Economic Panel (SOEP) waves). In concrete terms, the macroeconomic variables inflation, economic growth, and unemployment are at first connected with the German demographic ageing; afterwards, these connections are used to produce a nexus between German income inequality and the stated macroeconomic variables (additionally to the exogenous effects of ageing). For the empirical periods examined (1983-2009), there have been a) a (slightly) negative influence of demographic ageing on the inflation rate, b) a (weak) positive effect of ageing on the level – not on the increases (reductions) – of economic growth rates, and c) a somewhat stronger positive impact of demographic ageing on unemployment rates. While the measured income inequality is upwards directly (exogenously) driven by demographic ageing, the mechanisms through the different macroeconomic channels are more difficile: inflation is positively and unemployment negatively correlated with income inequality, and regarding economic growth a (slightly) concave effect upon income inequality has been observed. All these findings imply that demographic ageing, ceteris paribus and by tendency, diminishes income inequality via inflation and unemployment rate, which is also valid for economic growth (within the empirically relevant value range for the German demographic ageing). But on balance, there is an overcompensating direct, exogenous impact of demographic ageing on inequality in the model used in this paper, and this causes tendencies towards a remarkable increase of German income inequality until 2060. These tendencies are more pronounced in the forecast variant in which a strongly ageing population is assumed. |
| Keywords: | Demographic ageing, macroeconomics, personal income distribution, inequality. |
| JEL: | D30 D31 D60 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2012-272&r=pbe |