Do transfers lower inequality between households? Demographic evidence from Distributional National Accounts

Using the Distribution of Personal Income constructed by the Bureau of Economic Analysis for U.S. households (2007–2018), I use a National Accounts framework to show that transfers significantly lower inequality between households by redistributing income from non-elderly households to elderly households. Social security and Medicare are the most significant transfers, responsible for two third of the overall inequality reduction, substantially more than income-based transfers for most households. Transfers do not significantly reduce inequality between racial groups overall. As the population ages, transfers have increased as a share of income for all races; yet, inequality persists at a high level.