Effect of Marginal Changes in Income Sources On U.S. Income Inequality

Abstract

The success of public policies often turns on their distributional impacts. Policy analyses often compare inequality before and after the policy change, but such global estimates are sensitive to the ordering of income sources. This article presents a method for estimating distributional effects of marginal changes in income sources—including taxes and transfers—on the Gini coefficient and the extended Gini (which permits explicit focus on segments of distribution). The authors show how to integrate robustness and behavioral effects and to compare inequality effects across programs. The application yields estimates of the inequality impact per one dollar change in various U.S. taxes and transfers.

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