Uninterrupted growth, redistribution and inequality: The Australian case 1991-2020

Abstract

To what extent can a progressive tax and transfer system moderate the distributional impacts of uneven economic growth? We revisit this question in the unique Australian context of three decades of uninterrupted economic growth from 1991 to 2020. We analyse longitudinal tax records of millions of Australian taxpayers and examine the distributional impacts of uneven growth and the redistributive role of progressive income taxes and targeted transfers. Our results indicate that the uneven distribution of income growth, favoring higher income groups of taxpayers, Contributes to a rising trend in income inequality. The increased progressivity of the tax and transfer system has been instrumental in moderating these uneven gains across different groups. While inter-cohort income inequality has risen over time, lifetime inequality within cohorts has remained relatively lower and more stable, revealing potentially biased conclusions drawn from cross-sectional analyses. Employing a dynamic general equilibrium lifecycle model, we highlight the trade-offs between efficiency and equity when implementing more progressive tax and transfer policies.