Income redistribution

Over the past decades, household incomes have become more unequally distributed in most OECD countries. Taxes and transfers redistribute income from richer to poorer households in all OECD countries, lowering inequality.

Cash transfers account for the bulk of this redistribution. But the equalising effect of taxes and transfers varies widely across the OECD.

Size of transfers matter, but countries also differ in targeting to low-income households.

Redistribution has declined for almost all available OECD countries since the mid-1990s. This decline was largely driven by transfers, in particular insurance transfers.

While reforms to personal income taxes have had a much smaller impact.

More generally, tax and transfer reforms should be forward-looking, taking into account the rapidly changing context in which policy operates, not least technological developments, changes in the nature of work as well as ageing populations and the associated pressures on government budgets.

Social protection systems should adapt to the emergence of non-standard forms of work. Technological change, among other factors, has led to an increase in non-standard form of work and reduced the coverage of traditional social protection systems that are often based on the model of full-time permanent work for a single employer.

Tax policy also needs to reflect rising top incomes and private wealth among ageing populations along with ongoing progress in international cooperation on taxation. Broadening tax bases and improving compliance might be a way to increase the tax collected from this group by limiting the scope for avoidance.

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