Effects of Government Policies on Income Distribution and Welfare

A variety of parametric and semiparametric models produce qualitatively similar estimates of government policies’ effects on income distribution and welfare (as measured by the Gini, standard deviation of logarithms, relative mean deviation, coefficient of variation, and various Atkinson indexes). Taxes and the Earned Income Tax Credit are an effective way to redistribute income to the poor and raise welfare. The minimum wage lowers welfare. Social insurance programs have little effect except for Supplemental Security Income, which raises welfare. Transfer programs (AFDC/TANF and food stamps) either have no statistically significant effect or lower welfare. * Graduate Student, University of California, Berkeley ** Professor, University of California, Berkeley; member of the Giannini Foundation *** Professor, American University We thank David Neumark for helpful comments on a previous version. We are very grateful to Nick Johnson of the Center on Budget and Policy Priorities for information about the state EITC programs and Unicon Research Corporation (www.unicon.com) for providing us with the Census tax augmented Current Population Survey files prior to 1992. We thank the Institute of Labor Employment, the Institute of Industrial Relations, and the Giannini Foundation for generous support. Corresponding author: Jeffrey M. Perloff, Department of Agricultural and Resource Economics, 207 Giannini Hall, University of California, Berkeley, CA 94720-3310; [email protected]; 510/642-9574.