Predistribution versus redistribution: Evidence from France and the United States
What is this research about and why did you do it?
How much can redistribution policies account for long-run changes in inequality? The public economics literature has been largely influenced by an approach that treats pretax inequalities as given, and where the policy options for reducing inequalities rest on tax and transfers. However, public policies can also affect the pretax distribution of income, what has been called predistribution policies in political science. To progress on this debate, we wanted to estimate what was the contribution of redistribution versus pre-tax changes to changes in inequality, using data with sufficient historical and comparative breadth.
How did you answer this question?
This paper quantifies the amount of redistribution over time and across two countries, France and the United States, and estimate the relative magnitudes of redistribution and changes in pretax income in accounting for the observed evolution of post tax inequality. We rely on a broad definition of redistribution, which includes all the government policies affecting pretax income to obtain a post tax income (such as taxes and public spendings).
First, we construct series of post tax income for France over the 1900–2018 period.
Second, we quantify the impact of redistribution on inequality dynamics using a battery of inequality indicators, like the ratio between average incomes of the top 10 percent and bottom 50 percent groups(ratio T10/B50), the Gini, or the ratio between average incomes of the top 10percent and bottom 90 percent groups (ratio T10/B90).
What did you find?
First, we document that the reduction of inequality implied by redistribution is significant in France and the United States and increasing throughout the entire twentieth century.
Second, we show that most of the changes in post tax inequality over time are due to changes in pretax inequality and not so much to differences in redistribution. Third, by comparing France with the United States, we find that most of the post tax inequality differences across the two countries can be attributed to changes in pretax inequalities.
Figure 1 Contribution of Redistribution versus Pretax Inequality to Post tax Inequality (RatioT10/B90)
Notes: The black line shows the gap in post tax inequality measures between France and the United States. Bars in blue represent the contribution of pretax inequality in explaining the FR/US gap, while bars in red represent the contribution of redistribution to that gap. The inequality measure is the ratio between average incomes of the top 10 percent and bottom 00 percent groups (ratio T10/B90).
Source: For the United States: authors’ computations using the data from Piketty, Saez, and Zucman (2018).
What implications does this have for the study (research and teaching) of wealth concentration or economic inequality?
Our analyses highlight that a large set of policies can have an impact on pretax inequality (within country and over time) that would not be captured with the usual concept of redistribution, because this analytical tool can only capture direct redistribution from a given pretax income inequality. Indeed, traditional analysis of redistribution treats pretax inequality as given, and restrict policy options for reducing inequalities largely rest on various combinations of tax and transfers.
What are the next steps in your agenda?
Our next step is to document pretax and post tax inequality in additional countries and provide more direct evidence of policies affecting pre-tax inequality. Then, considering the importance of pretax inequality for the evolution of post tax inequality, it would be interesting to question the standard hypothesis from the classical political economy literature that higher inequality increases voters’ support for redistribution policies.
Citation and related resources
Bozio, A., Garbinti, B., Goupille-Lebret, J., Guillot, M and Piketty, T. 2024. "Predistribution versus Redistribution: Evidence from France and the United States." American Economic Journal: Applied Economics, 16 (2): 31–65. April 2024.
