A re-examination of welfare states and inequality in rich nations: How in-kind transfers and indirect taxes change the story

Abstract

Previous studies find large crossnational differences in inequality amongst rich Western nations, due in large part to differences in the generosity of welfare state transfers. The United States is the least generous nation and the one having the most aftertax and transfer inequality. But these analyses are limited to the effects of cash and nearcash transfers and direct taxes on incomes, while on average, half of welfare state transfers in rich nations are inkind benefits-health insurance, education, and other services. Counting inkind benefits at government cost and accounting for the indirect taxes used to finance transfers substantially reduces crossnational differences in inequality at the bottom of the income distribution. The findings have implications for how we think about tradeoffs across welfare state domains that all nations face and we illustrate this with reference to the current U.S. debate about health insurance. © 2006 by the Association for Public Policy Analysis and Management

A Comparison of Inequality and Living Standards in Canada and the United States Using an Expanded Measure of Economic Well-Being

“…Garfinkel, Rainwater, and Smeeding (2006), in particular, emphasizes the importance of noncash government transfers in reducing inequality in Canada vis-à-vis the United States. Like these authors, we do find that both transfers and public consumption are considerably larger as a share of total LIMEW in Canada than in the US.…”

“…According to Garfinkel, Rainwater, and Smeeding (2006), English-speaking nations such as Canada and the United States had the largest reductions in inequality, as measured by the 90/10 ratio, when these benefits were included. This result reflects the relatively greater spending on noncash benefits by these nations and emphasizes the importance of examining noncash transfers in assessing income inequality in North America.…”

Less Income Inequality and More Growth – Are They Compatible? Part 3. Income Redistribution via Taxes and Transfers Across OECD Countries

“…Reflecting differences in the level of consumption taxes (standard rates at 5% in Japan and about 7% in the United States, but up to 25% for the standard VAT rate in the Nordic countries), Garfinkel et al (2006) noted that the same hypothetical USD 1 000 cash transfer to low-income households buys more goods in the United States and Japan than in the Nordic countries -more than USD 930 compared with USD 750. Adema and Ladaique (2009) also recognise that consumption taxes reduce the real value of consumption which can be financed out of a given level of benefits.…”

The Impact of Publicly Provided Services on the Distribution of Resources

“…Incorporating the value of government services in household income raises a range of questions, some of which are conceptual, and others are methodological (see e.g. Marical et al 2006;Garfinkel et al 2006;OECD 2008a;Aaberge et al 2010a;Paulus et al, 2010), in particular: a) Which of the government services should be included for the analysis of the impact on poverty?…”

“…Antoninis and Tsakloglou, 2001;Garfinkel et al, 2006;Callan et al, 2008). This means that the beneficiaries of education are the pupils and students that are currently using these services.…”