2023-09-28 14:46:10 +00:00
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abstract: 'In recent decades, many affluent democracies moved from traditional
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welfare states to workfare systems. Meanwhile, income inequality
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developed differently across countries, even when they made apparently
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similar shifts from welfare to workfare. It is a matter of debate why
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welfare state change had such heterogeneous consequences across
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countries. This article proposes that different incentives to take up
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low-wage work set by tax reforms in the wake of welfare-to-workfare
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transitions alter consequences on inequality in the lower half of the
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income distribution. To support this argument, we contrast the trends
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between the U.S. and Germany. The German and U.S. tax systems were used
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in very different ways to incentivize low-wage work. The U.S. provided
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strong incentives to take up low-wage, high-hour work through refundable
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tax credits. They act as in-work subsidies and represent an enormous
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public income support program. In contrast, in Germany, payroll taxes
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were reduced for marginal employment. These jobs were intended to serve
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as a stepping stone to full employment. Germany aimed to reduce barriers
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to labor market entry, but did not increase subsidies for those working
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higher hours in low-wage jobs. We hypothesize that the German path led
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to increased income inequality within the lower half of the income
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distribution, whereas the large U.S. tax-based subsidies in the U.S.
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significantly counteracted it. Decompositions of unconditional quantile
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regressions based on the SOEP and the CPS-ASEC for 1992 and 2014
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strongly support these assumptions. Households with no labor market
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integration lost ground with the workfare reforms in both countries,
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increasing inequality in the lower half. However, U.S. households that
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conformed to the new workfare system by taking low-wage jobs received
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additional after-tax income through tax cuts and credits. This
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additional income of the beneficiary households increased the percentile
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values between the 10th and 30th percentiles by about 6 per cent, thus
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reducing income inequality in the lower half. Germany, on the contrary,
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lacked such compensatory subsidies for compliant households. Thus,
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increased takeup of low-wage work was associated with an increase in
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income inequality in the lower half. We conclude that tax systems are
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important in understanding why the shift towards workfare was associated
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with heterogeneous trends in income inequality across countries.'
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affiliation: 'Binder, B (Corresponding Author), Univ Konstanz, Dept Sociol, Univ Str
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10, D-78464 Constance, Germany.
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Binder, Barbara, Univ Konstanz, Dept Sociol, Univ Str 10, D-78464 Constance, Germany.
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Haupt, Andreas, Karlsruhe Inst Technol, Inst Sociol Media \& Culture Studies, Waldhornstr
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27, D-76131 Karlsruhe, Germany.'
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article-number: '100712'
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author: Binder, Barbara and Haupt, Andreas
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author-email: 'barbara.binder@uni-konstanz.de
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andreas.haupt@kit.edu'
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author_list:
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- family: Binder
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given: Barbara
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- family: Haupt
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given: Andreas
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da: '2023-09-28'
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doi: 10.1016/j.rssm.2022.100712
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earlyaccessdate: JUL 2022
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eissn: 1878-5654
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files: []
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issn: 0276-5624
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journal: RESEARCH IN SOCIAL STRATIFICATION AND MOBILITY
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keywords: 'Income inequality; Tax policy; Workfare; Tax credits; Poverty;
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Unconditional quantile regression'
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keywords-plus: 'WELFARE-STATE; EITC; EMPLOYMENT; POVERTY; POLICY; FAMILIES; BENEFITS;
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IMPACTS; POOR'
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language: English
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month: AUG
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number-of-cited-references: '86'
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papis_id: 2d6c6c7ea0ebe17fa340c7d50de32e34
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ref: Binder2022fundamentalrole
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times-cited: '0'
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title: The fundamental role of tax systems in the relationship between workfare and
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inequality in the lower half of the income distribution
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2023-10-01 08:15:07 +00:00
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type: article
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2023-09-28 14:46:10 +00:00
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unique-id: WOS:000829231400002
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usage-count-last-180-days: '3'
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usage-count-since-2013: '11'
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volume: '80'
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web-of-science-categories: Sociology
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year: '2022'
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