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Insurance, Redistribution, and the Inequality of Lifetime Income

  • Individuals vary considerably in how much they earn during their lifetimes. This study examines the role of the tax-and-transfer system in mitigating such inequalities, which could otherwise lead to disparities in living standards. Utilizing a life-cycle model, we determine that taxes and transfers offset 45% of lifetime earnings inequality attributed to differences in productive abilities and education. Additionally, the system insures against 48% of lifetime earnings risk. Implementing a lifetime tax reform linking annual taxes to previous employment could improve the system’s insurance capabilities, albeit at the cost of a lower employment rate.

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Metadaten
Document Type:Working Paper
Language:English
Author(s):Peter Haan, Daniel Kemptner, Victoria Prowse, Maximilian Schaller
Parent Title (English):Berlin School of Economics Discussion Papers
Hertie Collections (Serial Number):Berlin School of Economics Discussion Papers (28)
Publication year:2023
Publishing Institution:Hertie School
Number pages:70
Related URL:https://berlinschoolofeconomics.de/insights/bse-discussion-papers
DOI:https://doi.org/10.48462/opus4-5112
Release Date:2023/11/13
Tag:Economics
Edition:No. 28
Hertie School Research:BerlinSchoolOfEcon_Discussion_Papers
Licence of document (German):Creative Commons - CC BY - 4.0 International
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