The Effects Of U.S. Fiscal Policy On Income Inequality (1913 – 2013)

Income inequality in the United States has reached a level not seen since the Great Depression. Some academics and lawmakers suggest that growing inequality is due to changes in fiscal policy, arguing that cuts in taxes and government spending have reduced the inequality-mitigating effect of fiscal redistribution. While older research provides some support for this argument, newer research suggests otherwise. This disagreement in the literature led me to ask, How has fiscal policy affected income inequality in the United States during the last century? This study seeks to answer this question using data from Piketty et al. (2018), which includes all sources of income and all fiscal policy from federal, state, and local levels. Using this data, I measure levels of inequality both before and after the effects of fiscal redistribution during three different policy regimes: classical liberalism (1913 – 1932), embedded liberalism (1933 – 1980), and neoliberalism (1981 – 2013). I find that during the 101-year period, fiscal policy had a mitigating effect on inequality. And while fiscal redistribution increased over the course of the century, inequality continued to grow