Comparing Government Redistribution across Countries: The Problem of Second-Order Effects

Objective. We offer an alternative to the conventional measure of government redistribution that seeks to address problems of second-order effects whereby income guarantees arising from public pensions make it less necessary for people to save for their retirement, rendering the "pregovernment" counterfactual to the observed postgovernment distribution unrealistic.Method. We use household-level data from the Luxembourg Income Study to calculate an alternative measure of government redistribution that includes public-sector pensions in "pregovernment" income alongside private-sector pensions, on the assumption that each represents a claim on future income.Results. Employing the alternative method described in the article results in lower values for redistribution than the conventional measure.Conclusion. We suggest that our alternative method be used in addition to the conventional method in cross-national research, in an effort to achieve a more complete understanding of government redistribution in the developed countries.