The welfare state reduces inequality by a quarter

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In the 28th issue of the series Social Change in Switzerland, Oliver Hümbelin and his colleagues document how the welfare state changes the distribution of income in Switzerland. Thanks to social benefits and taxes, market income inequality is reduced by a quarter. Most of the redistribution is done through social transfers, the least through taxes.

Switzerland had long been considered a laggard in terms of its welfare state. However, the Swiss welfare state is now making a decisive contribution to reducing income inequality. Based on 3.4 million individual data from social insurance and tax registers, the authors show that social benefits and taxes reduce market income inequality by one quarter. 70% of this reduction is due to transfers - primarily pensions and social assistance benefits - and a further 30% is explained by the progressivity of direct taxes.

For households that have reached retirement age, the AHV is the main source of income for 70% of pensioners. In comparison, occupational pensions play a more modest role, especially for the less well-off pensioners. Only at the 70th percentile of income do pensions from occupational pensions outweigh those from the AHV, while income from assets dominates for the richest 5% of pensioners.

The four researchers also show that a majority of society benefits from the welfare state. On average, the social benefits received outweigh the direct taxes paid up to the 60th income percentile of the working population. For the poorest 10 per cent, social benefits double market income, while for the richest 10 per cent, market income falls by one fifth after social benefits and taxes. In an international comparison, however, the redistributive effect of direct taxes remains low. The authors explain this peculiarity of Switzerland by the cantonal and communal tax competition which, over the years, has weakened the progressivity of the tax system.

>> Hümbelin, Oliver, Farys, Rudolf, Jann, Ben & Lehmann, Olivier (2021). La redistribution par les impôts et transferts sociaux en Suisse­. Social Change in Switzerland, N°28, www.socialchangeswitzerland.ch

Contact:

Prof Oliver Hümbelin, Haute école spécialisée bernoise, 031 848 36 97 oliver.huembelin@bfh.ch

The series Social Change in Switzerland continuously documents the evolution of the social structure in Switzerland. It is published jointly by the Swiss Competence Centre for Social Sciences FORS, the Centre for Research on Life Courses and Inequalities (Faculty of Social and Political Sciences, University of Lausanne) LINES and LIVES - The Swiss Competence Centre for Research on Life Courses and Vulnerabilities. The aim is to trace changes in employment, family, income, mobility, voting or gender in Switzerland. Based on state-of-the-art empirical research, it is aimed at a wider audience than just specialists.

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