Decomposing Redistributive Effects of Taxes and Transfers in Australia: Annual and Lifetime Measures.

This paper decomposes the redistributive effect on annual and lifetime inequality of a range of taxes and transfers in Australia, using a dynamic cohort lifetime simulation model. The redistributive effect is decomposed into vertical, horizontal and reranking effects. Horizontal inequities in the tax and transfer system are found to be negligible. The extent of reranking is greater in the lifetime than in the annual context and is affected by the equivalence scales used to adjust household incomes. If no adjustment is made to household incomes, reranking is about nine per cent of the reduction in lifetime inequality. However, if each child is counted as equivalent to one-third of an adult, reranking is found to be less than one per cent. Copyright 2001 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia