Inequality, individual behaviour, and policy reforms: evidence from administrative tax records

The “TAXINEQ” project contributes to the frontier of knowledge about the measurement, causes and consequences of economic inequality and the role of public policies. In order to deliver this objective, it has put together a skilled multi-disciplinary and international team, that combines and junior and more experienced researchers. In the very first lines of Anthony Atkinson’s testament book – “Inequality, what can be done?” – published in 2015, he wrote “Inequality is now at the forefront of public debate”. Indeed, inequality has been named by the respondents of a 2014 survey by the Pew Research Center as the greatest threat to the society. The interest of the research and policy communities for inequality has been fueled by the availability of new administrative data sets that cover the universe of taxpayers, which allowed to improve our insights about measuring inequality, its causes, and consequences. TAXINEQ advances the frontier of knowledge in this domain. TAXINEQ takes advantage of rich and hitherto unexploited administrative tax data from Portugal. The path breaking nature of TAXINEQ is grounded on the following facts: (i) income, wealth, and consumption tax records have unique individual identifiers that allow us to merge the datasets; (ii) Consumption data is collected through a system of electronic invoicing through which consumption is reported to the Portuguese Tax Authority by retailers, thus avoiding the usual misreporting caveat that is common to self-reported retrospective survey data; (iii) consumption data is collected at a monthly frequency. The most important contribution of TAXINEQ, the first Work Package (WP), exploits these features of the data to provide the first high-frequency, robust, and unbiased study of the link between income and consumption. This parameter is of high importance for the design of welfare state (tax and transfer) policies when individuals face constraints which create a positive link between transitory changes in income and consumption, i.e., when consumption smoothing fails to apply. Moreover, TAXINEQ will exploit the richness of the demographics reported in the income tax, as well as income and wealth measures to document heterogeneity in the propensity to consume. As transfer and tax policies depend on household composition and income levels, the first WP of TAXINEQ will provide microfoundations to finetune these policies.

PROPONENT INSTITUTION: Faculty of Economics of Universidade Nova de Lisboa

PARTICIPATING INSTITUTIONS: SOCIUS - Research Centre for Economic and Organisational Sociology at CSG/ISEG-ULisboa

INSTITUTIONS OF COLLABORATION: Université Libre de Bruxeles, Ecole des Hautes Études en Sciences Sociales, Instituto Nacional de Estatística, Universidad Carlos III

TEAM: Susana Peralta (Coordinator) and Amilcar Moreira (co-coordinator)

FUNDING: FCT Ref. 2022.04821.PTDC