Public oolicies and the middle class throughout the world in the mid 2000s

This paper updates and extends my earlier work, published in the Journal of Economic Issues, on how the middle class fares throughout the world. My 2007 paper provided a definition of the middle class as well as estimates of the size of the middle class in several nations. It argued that the fraction of households that are middle class across nations and over time is mainly determined by government tax and spending policies. The more progressive the national tax system, and the more generous government spending programs, the larger is the proportion of middle-class households. This empirical work on the middle class was done using the Luxembourg Income Study (LIS), an international database containing extensive income as well as socio-demographic information. LIS databases center around particular years, called 'waves'. Each wave is around 5 years apart, with Wave #1 beginning in the early 1980s. For my previous research, data was available only up Wave #5 (around 2000), and Wave #5 data was unavailable for some countries. More Wave #5 data is available, and some data for Wave #6, centered around 2004, has come online recently. This provides an opportunity to assess what has happened to inequality and the size of the middle class in the early 2000s. In addition, my earlier work focused only on aggregate tax and spending by governments; it did not look at specific policies and how these promoted a middle class in different nations. This paper focuses on three specific sorts of national spending policy that assist households and affect the size of the middle class across nations and over time. First, there are policies that aid the unemployed and disabled. Second, there are retirement programs that provide income to older households. Third, there are policies that assist families with children (child or family allowances, family leave policies and child support payments). It examines the extent to which each of these policies increased the size of the middle class in the early 2000s, the impact of the set of these three policies on the middle class in the early 2000s, as well as other possible determinants of the size of the middle class in the 2000s.