royalties, and by private and public sector employees. “voluntary individual” pensions received The total of these sources of income is defined as Finally, several additional, “factor income.” relatively minor, sources of private sector but non-market income are added to factor income: merit-based educational transfers; transfers from non-profit institutions; and inter-household transfers, such as alimony and child support. In measuring the extent of inequality reduction by way of public social benefits, it is necessary to add to private sector income any benefits from public sector cash and near-cash transfers. The coverage of such transfers in LIS income surveys is quite extensive. The main modes include social security benefits, such as employment-related retirement, disability and survivors pensions; child and family allowances; unemployment compensation; sickness, maternity and work-injury pay; and means-tested social assistance of various kinds. The standard summary measure of inequality, which will be employed here, is the Gini index, which ranges from 0 (all households receive the same income) to 1.000 (one household receives all income). Government inequality reduction is measured as the reduction of the Gini index of private sector income when income from public sector social transfers is added. For example, in the United States in 2010, the Gini index of private sector inequality was .504. When social transfers were added to private sector income the Gini fell to .415, a decline of 89 Gini points. In Germany in the same year, the Gini index of private income inequality was slightly higher than in the United States: .513. However, when pubic social transfers were added to income, the Gini declined to .338, a reduction of 175 Gini points—nearly German households’ twice as large as the decline in the United States. As to independent variables, these measure reliance on various types of taxes, countries’ each measured as a share of GDP. Indirect taxes, the primary focus of this paper, are taxes that
royalties, and “voluntary individual” pensions received by private and public sector employees. The total of these sources of income is defined as “factor income.” Finally, several additional, relatively minor, sources of private sector but non-market income are added to factor income: merit-based educational transfers; transfers from non-profit institutions; and inter-household transfers, such as alimony and child support. In measuring the extent of inequality reduction by way of public social benefits, it is necessary to add to private sector income any benefits from public sector cash and near-cash transfers. The coverage of such transfers in LIS income surveys is quite extensive. The main modes include social security benefits, such as employment-related retirement, disability and survivors pensions; child and family allowances; unemployment compensation; sickness, maternity and work-injury pay; and means-tested social assistance of various kinds. The standard summary measure of inequality, which will be employed here, is the Gini index, which ranges from 0 (all households receive the same income) to 1.000 (one household receives all income). Government inequality reduction is measured as the reduction of the Gini index of private sector income when income from public sector social transfers is added. For example, in the United States in 2010, the Gini index of private sector inequality was .504. When social transfers were added to private sector income the Gini fell to .415, a decline of 89 Gini points. In Germany in the same year, the Gini index of private income inequality was slightly higher than in the United States: .513. However, when pubic social transfers were added to German households’ income, the Gini declined to .338, a reduction of 175 Gini points—nearly twice as large as the decline in the United States. As to independent variables, these measure countries’ reliance on various types of taxes, each measured as a share of GDP. Indirect taxes, the primary focus of this paper, are taxes that