How redistributive institutions affect pay inequality and heterogeneity among top managers

Angeles, Renira Corinne; Kemmerling, Achim

doi:10.1093/ser/mwz048

Cited by 5 publications

(2 citation statements)

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“…Thus, we need to include both as structural factors in our explanations of income inequality. However, while previous research agrees on the importance of income taxes for increased inequality, payroll taxation plays no role in current debates about its causes (Angeles and Kemmerling 2020;Gornick and Smeeding 2018;Wang, Caminada, and Goudswaard 2014). 2 Within this article, we make the case that we need to include a country's payroll tax system as an important structural factor for income inequality, too.…”

Section: Introductionmentioning

confidence: 95%

Payroll-Exempt Labor Incomes Increase Inequality at the Top

Haupt

Nollmann

2021

Social Forces

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In recent decades, the inequality of household income has increased globally. A common trend is increased income inequality at the top of the distribution. The sources of this trend are a matter of debate. Increased demand for analytical and managerial skills is said to have strongly increased labor incomes at the top. Other scholars have indicated that structural conditions, such as financialization or favorable taxation, have benefited top-earning households. Here, we contribute to the latter line of reasoning. We show that payroll taxes exempt parts of high labor incomes, reinforcing income inequality at the top. Such taxation has large fiscal volume and redistributive power. However, our knowledge about the distributional consequences of payroll taxation as a tax scheme is remarkably thin. Many countries, such as Germany and the United States, restrict payroll taxes to a maximum amount, resulting in significant payroll tax–exempted incomes for high-earning households. Strongly growing top-labor incomes thus lead to increased payroll tax–exempted incomes for households at the upper parts of the distribution and, consequently, to higher income inequality. We use Germany (1992–2017), a highly redistributive country, as a case study. Our empirical results suggest that: (1) households increasingly profit from payroll-exempted labor incomes across the upper quarter; (2) this benefit has increased over time; and (3) increased amounts of payroll tax–exempted labor income explain up to 60 percent of income dispersion at the top of the distribution. We discuss the generalizability of our case study for other countries, especially the United States.

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Section: Introductionmentioning

confidence: 95%

Payroll-Exempt Labor Incomes Increase Inequality at the Top

Haupt

Nollmann

2021

Social Forces

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show abstract

“…Thus, we need to include both as structural factors in our explanations of income inequality. However, while previous research agrees on the importance of income taxes for inequality, payroll taxation plays no role in current debates about its causes (Angeles and Kemmerling 2020;Gornick and Smeeding 2018;Wang, Caminada, and Goudswaard 2014). 2 Within this article, we make the case that we need to include a country's payroll tax system as an important structural factor for income inequality, too.…”

Section: Introductionmentioning

confidence: 95%

Payroll-exempt labor incomes increase inequality at the top

Haupt¹,

Nollmann²

2021

Preprint

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In recent decades, inequality of household income has increased globally. A common trend is increased income inequality at the top of the distribution. The sources of this trend are a matter of debate. Increased demand for analytical and managerial skills is said to have strongly increased labor incomes at the top. Other scholars have indicated that structural conditions, such as financialization or favorable taxation, have benefited top-earning households. Here, we contribute to the latter line of reasoning. We show that payroll taxation reinforces income inequality at the top. Such taxation has large fiscal volume and redistributive power. However, our knowledge about the distributional consequences of payroll taxation as a tax scheme is remarkably thin. We claim that payroll taxes are central to understanding income inequality. Many countries, such as Germany and the US, restrict payroll taxes to a maximum amount, resulting in significant payroll tax-exempted incomes for high-earning households. Strongly growing top-labor incomes thus lead to increased payroll tax-exempted incomes for households at the upper parts of the distribution and, consequently, to higher income dispersion. We use Germany (1992–2017), a highly redistributive country, as a case study. Our empirical results suggest that: a) households increasingly profit from payroll-exempted labor incomes across the upper quarter; b) this benefit has increased over time; and c) increased amounts of payroll tax-exempted labor income explain up to 60% of income dispersion at the top of the distribution. We discuss the generalizability of our case study for other countries.

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