The case for taking a life-cycle perspective: inequality, redistribution, and tax and benefit reforms

Summary

Most analysis of the impact of taxes and benefits on households is
cross-sectional, with individuals classified as rich or poor, and gains
and losses calculated, using a single snapshot of data. In this report,
we argue the case for taking a longer-run perspective. In particular, we
show that income and circumstances over longer horizons (such as
several years) are likely to form a better basis for measuring living
standards. We then demonstrate how common measures of inequality and
redistribution, and distributional analyses of tax and benefit reforms,
are affected by taking a longer-run perspective. Results from the two
perspectives may look quite different from each other and, as a result,
we could end up with contrasting impressions of the extent to which the
tax and benefit system redistributes from rich to poor.