1. Changes in Poverty Reduction and Fiscal Redistribution in Comparative Perspective: Longitudinal Evidence from the Luxembourg Income Study (LIS)
David K. Jesuit* Vincent A. Mahler
Central Michigan University Loyola University Chicago
Paper prepared for delivery at the First Annual LIS/LWS Users Conference, University of Luxembourg, Belval, Luxembourg, April 27-28, 2017.
*Corresponding author: Department of Political Science and Public Administration, Central Michigan University, Mount Pleasant, MI, 48858, USA.

2. Outline Update to Fiscal Redistribution Dataset (descriptive)
Cross-national comparisons
Poverty
Affluence
Middle class
Changes over time
5 countries available for Wave II-IX (3 for I-IX)
Is there a trade-off so that reductions in poverty come at the expense of the affluent?

3. Fiscal redistribution overview
Modes of redistribution
Social transfers (hits)
Pensions (pensions)
Working-aged (hits-pensions)
Direct taxes: personal income taxes & social insurance contributions
Second order effects
Redistribution affects pre-government income
Focus on pensions

4. Fiscal redistribution overview
Poverty
Poverty line=50% median post-government equivalent income
Example: family of four in the US in 2013 poverty line=$31,955 (50% of the median income multiplied by the square root of four, or two)
Affluence
Affluence line=200% median disposable income
Example: affluence threshold of $63,010 per equivalent adult or $126,020 for a family of four in US in 2013.
Middle class=share neither affluent or poor

5. Fiscal redistribution overview
Head count (pre-government income) - Head count (post-government income)
Absolute v. relative reductions
Trends 1980 (LIS Wave II)-2014 (LIS Wave IX)
Means by LIS Wave computed for five countries:
Germany
Netherlands
Norway UK US
Conclusions

7. Conclusions: poverty comparisons
Substantial variation in levels of pre- and post-government income poverty
This is also true for the countries in central and Eastern Europe that we recently added.
Reductions in poverty are accomplished solely through transfers.
Pensions make up the vast majority of transfer income in nearly every country we examine.
Direct taxes, when examined separately, tend to increase poverty.

9. Conclusions: affluence & middle-class
Rates of affluence vary widely, with largest shares in Estonia and the US and smallest in Nordic countries.
Taxes have the largest redistributive effect, reducing the size of the affluent population by about 75%
Transfers move people into affluence, though in much smaller numbers
Pre-taxes and -transfers, UK had smallest middle class & Denmark the largest.
After taxes and transfers, Sweden had largest middle class.

13. Conclusions: changes in poverty & middle class over time
Private income poverty has grown steadily since 1980
Most of these increases have been offset by transfer income, especially income from old-age pensions
The effect of pensions in reducing poverty nearly doubled since 1980
The effect of working-age transfer income on poverty fluctuated, seeming to coincide with the rise and fall of the economic cycle
Though small, the effect of taxes varied somewhat as well
Middle class has been shrinking, though by smaller amount after transfers added

16. Conclusions: change in affluence over time
Post-government affluence grew in the last 3 decades
The steady increase in the percent affluent was due to taxes, which have become less redistributive in the last 3 decades
Working against this trend was the steady increase in transfer income generosity, moving more people into affluence over time
Once again, this is especially true for pension income
At top of income distribution taxes play a much larger role than transfers; for every person made affluent from transfers, two are moved out by taxes
Private sector affluence also grew, but it was not steady and peaked in 1995 before falling and then rising again

18. Conclusions: Robin Hood Effect
Reductions in poverty came at the expense of the affluent
Lower poverty rates are associated with larger net reductions and reductions via taxes of the share considered affluent
Reductions were associated with larger reductions from working-aged transfer income, but not pensions
Transfer income generosity associated with larger net reduction in poverty overall, both via all transfers, and via pensions
Coefficient suggests that for every one person becoming affluent, two people move out of poverty. In other words, transfers disproportionately favor the poor.

19. Thank you