THE DISTRIBUTIONAL CONSEQUENCES OF GOVERNMENT SPENDING AND TAXATION IN THE U.S., 1989 AND 2000

Abstract

We assess the effects of government expenditures and taxation on household economic well‐being in the United States in 1989 and 2000. Net government expenditure is estimated as the difference between government expenditures incurred on behalf of the household sector—transfers and public consumption—and the taxes paid by that sector. We incorporate the estimates of net government expenditures into a wealth‐adjusted measure of income. We find that overall inequality in our income measure is considerably reduced by net government expenditures. Results from decomposition analysis show that the inequality‐reducing effect of net government expenditures owed more to expenditures than to taxes.