Manuel Schechtl, one of two postdoctoral scholars who joined the Stone Center this fall, specializes in wealth inequality, the determinants of poverty, and the consequences of tax policies. He is the coauthor of “Fiscal Impoverishment in Rich Democracies,” a working paper that introduces a new framework in comparative poverty research: fiscal impoverishment. The paper, which uses harmonized household survey data from LIS, shows that income taxes in some wealthy democracies can push poor households deeper into poverty. Schechtl recently spoke to the Stone Center about his research interests and findings.

How did you become interested in tax policy?

Schechtl: In the second semester of my bachelor’s degree program in Munich, we had a seminar on fiscal politics and democracy. I became so interested in this topic, because taxes are something that structures political life every day, yet it’s still so hidden. Everybody knows about taxes, but how do they actually work, and what are all the different layers in the tax systems, and why do places differ in the way that they tax, and what are the consequences? This subject is understudied in the social sciences, because it’s between fields.

I got my bachelor’s degree in economics because of my interest in taxes, and from there, one step followed another, leading to a Ph.D. in sociology. But the question I was developing was: How are taxes implicated in structuring social stratification, social inequality, the social relations between different demographic groups within societies, and also, of course, across countries? Naturally, if you want to pursue these questions across countries, LIS is the source to go to. I went to the LIS Summer Workshop at the very beginning of my Ph.D., and then basically did my entire Ph.D. with LIS data, which is also part of why I applied for this position at the Stone Center, because it’s the LIS office in the U.S. and because socio-economic inequality merges different fields. I don’t identify as a sociologist or even as an economist. I’m a social scientist who is interested in socio-economic questions.

What do you plan to work on during the next two years?

Schechtl: I’m planning to work on a wide range of topics, but all of them are related to inequality and taxes. One important area is how wealth inequality is structured by taxes. This is something that is difficult to grasp, because we don’t have as much reliable wealth data [as income data], and taxes, by their very design, are often not levied on wealth, but on income and consumption and the like.

Another area is a much more general perspective of taxes and of structuring of life chances: How is mobility across different U.S. states and counties affected by the spending and revenue of state and local governments, for instance? I’m also working with the GC Wealth Project team on their EIG section, which is the estate, inheritance, and gift tax section, and I’m looking forward to using those data for my inequality analysis.

What is fiscal impoverishment, the framework you explore in your recent working paper?

Schechtl: When we talk about poverty, we usually think about what the government can do for the poor: give them transfers, give them cash benefits, give them food stamps to help them make ends meet. The dominance of this perspective hides the fact that there’s a significant proportion of poor people who end up being poor because too much is taken from them. If they did not have to pay taxes, they would not end up poor; there wouldn’t be a need for the government to give cash benefits to them if the government didn’t take so much.

The concept of fiscal impoverishment is borrowed from development economists. We focus on rich democracies, and use the LIS data. We find that fiscal impoverishment varies a lot across countries, and that there are people who end up being poor just because they have to pay taxes. We find this mostly in the Mediterranean countries — Spain, Greece, Italy — but there are also countries that are usually seen as being fairly redistributive, like certain Nordic countries, that have a quite substantial proportion of people in poverty who actually pay more in taxes than they receive in transfers, which means in cash terms they are worse off after state intervention. I’m currently also working on an extension of this paper with data from Eastern European countries, and we see that these Southern European countries also have very high levels of fiscal impoverishment, which questions the framing of the southern countries as outliers. Fiscal impoverishment is much less of a problem in the U.S. because of the expansion of the EITC, or earned income tax credit, which is designed specifically to benefit low-income households.

What are the policy implications of your findings? Should governments simply eliminate taxes on the poor and on low-income households?

Schechtl: The solution would be either to tax poor and low-income households less or to provide more transfers for the poor — both would end fiscal impoverishment. It’s important to note that the countries we analyze are rich countries, and we argue that all of them have the fiscal capacity to end fiscal impoverishment, because they have enough people who are not in poverty that they could still tax. It’s also important to note that even a tax system that has higher taxes for the rich and lower taxes for the poor, which is what we generally want, can create fiscal impoverishment, because if you tax the poor and don’t give them any transfers, they will still end up in a worse position than before.

It could be easier politically to reduce the tax burden on the poor than to increase benefits for the poor. Usually, giving money entails more political battles; exemptions from taxes are more hidden and there’s less scrutiny. There are a lot of benefits for rich households in the tax code that few people care about, because few understand them.

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