Income Redistribution Around the Globe: Determinants and Mechanisms

Working Paper 2025-680

Abstract

Income redistribution through taxes and transfers varies significantly across countries and time. This study re-examines the determinants of redistribution using a novel dataset of 100 observations from 77 mostly low- and middle-income countries. The analysis addresses key econometric challenges, incorporates a broader range of fiscal interventions than previous studies, and decomposes redistribution into three channels: progressivity, size, and reranking. A stronger rule of law, higher ethnic fractionalization, a larger old-age population, greater female parliamentary representation, higher unemployment, a higher income ratio between middle and top deciles, and federal systems are linked to greater redistribution. Conversely, democracy and larger population size correlate with lower redistribution. Size and progressivity of direct transfers and indirect taxes emerge as the primary mechanisms driving these outcomes.

Authors: Ali Enami, Nora Lustig.