Uninterrupted Growth, Redistribution and Inequality: The Australian Case 1991-2020

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 use longitudinal tax records of millions of Australian taxpayers to 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, shapes a rising trend in market income inequality. The increased progressivity of the tax and transfer system has been instrumental in moderating these uneven gains across dierent 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 effciency and equity when implementing more progressive tax and transfer policies. Thus, our findings suggest that accounting for taxes and transfers, and lifetime income materially affects measures of inequality. JEL: E62, H24, H31