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Mobility and the lifetime distributional impact of tax and transfer reforms

IFS Working Paper W17/17

This paper examines the distributional impact of increases to out-of-work transfers, increases to work-contingent transfers, and increases in higher rates of income tax over the whole of life. We find that, in contrast to what is implied by standard snapshot analyses, increases to work-contingent benefits are just as effective at redistributing resources to the lifetime poor as increases to out-of-work benefits. This has important implications for the equity-efficiency trade-off typically thought to apply to work-contingent transfers. However, we find that higher rates of tax on annually assessed income are an effective way of targeting the lifetime rich, as incomes are more persistent towards the top of the distribution. Our results illustrate the importance of moving beyond an exclusively snapshot perspective when analysing tax and transfer reforms.

This working paper is an updated version of W16/17.

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IFS Working Paper W16/17
The distributional impact of proposed reforms plays a central role in public debates around tax and transfer policy. We show that accounting for realistic patterns of mobility in employment, earnings and household circumstances over the life-cycle greatly affects our assessment of the ...
Press release
In a single year, 64% of individuals in the UK pay more in taxes than they receive in social security. But most individuals experience considerable change over their lifetimes: for example those not in paid work in one year are often in work in another year. New analysis, published by the Institute ...
This presentation was given at the Understanding Society Scientific Conference, Essex, July 2017