Why the Growth in Inequality?. Taxes and Transfers? Demographic Changes Changes in Distribution of Market Income –Service Sector? –Skill Bias?

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Presentation transcript:

Why the Growth in Inequality?

Taxes and Transfers? Demographic Changes Changes in Distribution of Market Income –Service Sector? –Skill Bias?

Redistributive Effects of Taxes and Transfers Smaller Source: Gramlich et al, “Growing Inequality in the 1980s: The Role of Federal Taxes and Cash Transfers, in Uneven Tides: Rising Inequality in America, edited by Danziger and Gottschalk, 1993.

Changes in Tax Policy Cuts in marginal tax rates for highest brackets relative to other brackets. Increases in Social Security taxes Increase in federal excise tax rates, but real receipts constant AFDC and Unemployment Insurance did not keep pace with inflation

The Education Premium Source: Levy, Frank, The New Dollars and Dreams

Brainstorming Class Discussion of Levy, Some Graphs and Figures May Be Introduced

Explaining the Education Premium Simple model Determinants of wages -- labor supply and demand Human capital investment decision Efficiency, equity and the wage premium Unions, monopsony, job queues and efficiency wages (again)