Increased Income Inequality in OECD Countries and the Redistributive Impact of the Government Budget.

The recent rise in inequality in the distribution of disposable income in many, although not all, countries has led to a search for explanations, particularly since for much of the postwar period falling inequality has been the norm. In OECD countries, the cause has typically been identified as rising wage dispersion, coupled with persistent unemployment in Europe, but changes in the government budget can also be important. This paper is concerned with the role of the government budget, particularly taxes and transfers, in explaining the evolution of the distribution of disposable income.