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Individuals vary considerably in how much they earn during their lifetimes. This study examines the role of the tax-and-transfer system in mitigating such inequalities, which could otherwise lead to disparities in living standards. Utilizing a life-cycle model, we determine that taxes and transfers offset 45% of lifetime earnings inequality attributed to differences in productive abilities and education. Additionally, the system insures against 48% of lifetime earnings risk. Implementing a lifetime tax reform linking annual taxes to previous employment could improve the system’s insurance capabilities, albeit at the cost of a lower employment rate.
Authors
![Peter Haan](/sites/default/files/styles/square_desktop/public/2024-02/Peter%20Haan%20Website.jpg?itok=bnvwUCKR)
Research Fellow DIW Berlin
Head of department of Public Economics at DIW Berlin and Professor of Public Economics at Freie Universität Berlin.
![Person graphic](/sites/default/files/styles/square_desktop/public/2022-06/IFS-person-graphic.png?itok=hWCtTSrz)
Daniel Kemptner
Professor of Economics Purdue University
PhD Candidate FU Berlin and DIW Berlin
Working Paper details
- DOI
- 10.1920/wp.ifs.2023.3323
- Publisher
- Institute for Fiscal Studies
Suggested citation
Haan, P et al. (2023). Insurance, redistribution, and the inequality of lifetime income. 23/33. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/insurance-redistribution-and-inequality-lifetime-income (accessed: 29 June 2024).
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