Income redistribution and the state’s fiscal system

Abstract

As a result of the global financial crisis and the subsequent recession, income inequality has increased in most countries around the world. According to H. Immervoll and L. Richardson, the recent crisis, in contrast to previous global crises, was characterized by a higher impact on income distribution in OECD countries (Immervoll, Richardson, 2011, p. 4). In addition to changes in the labour market caused by recession, current global trends, such as demographic changes and changes in the size and composition of households, also impacted the level of inequality. The problem of income inequalities has not only affected the Anglo-Saxon model countries in their conduct of a liberal economic policy, but also countries classified as egalitarian, such as Germany or Sweden. Governments of many countries have attempted to hinder this process by using fiscal policy tools. Counteracting the increase in income inequality is one of the priorities of the state, according to the concept of maximin wellbeing (the level of overall wellbeing determines the wellbeing of the poorest social groups), or A. Sen’s account of wellbeing (inequalities reduce the level of overall wellbeing). The aim of this article is to classify OECD countries into fiscal models based on the criterion of the structure of tax revenues and public expenditure and to compare them in terms of the scope of redistribution by means of taxation and social transfers and the level of income inequalities. Based on a comparative analysis of the structure of tax revenues and public expenditure in 30 countries classified into six fiscal models and the Redistribution Index, Progression Index and Gini Index before tax and social transfers, the following hypotheses were verified: there is a relationship between the structure of tax revenues and public expenditure and the scope of redistribution; there is a relationship between the structure of tax revenues and public expenditure and the level of income inequalities; and countries with high levels of income inequality are characterized by a higher scope of re-