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The Welfare Impact of Price Changes on Household Welfare and Inequality 1999-2011

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  • JASON LOUGHREY

    (Teagasc/National University of Ireland Galway)

  • CATHAL O’DONOGHUE

    (Teagasc)

Abstract

This paper attempts to use applied micro-economic research to understand the impact of price changes over the period 1999-2011 in Ireland. This measure combines an efficiency component using a Linear Expenditure System (LES) and an equity component using the Atkinson Index of Inequality. The efficiency component includes the behavioural response to price changes for non-subsistence expenditures thereby producing a Cost of Living Index. The Atkinson Index of Inequality produces an inequality measure and this is combined with the Cost of Living Index to produce an overall welfare measure. This extends upon the existing Irish literature on this issue by accounting for this broader set of components. The results show that changes in the cost of living have differed substantially between households both in terms of demographics and the position of the household in the income distribution and that behavioural response can potentially improve the welfare position of households in response to price changes in most years.

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Bibliographic Info

Article provided by Economic and Social Studies in its journal Economic and Social Review.

Volume (Year): 43 (2012)
Issue (Month): 1 ()
Pages: 31–66

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Handle: RePEc:eso:journl:v:43:y:2012:i:1:p:31-66

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  1. Creedy, J. & Dixon, R., 1995. "The Relative Burden of Monopoly on Households with Different Incomes," Department of Economics - Working Papers Series 477, The University of Melbourne.
  2. Roberts, Kevin, 1980. "Price-Independent Welfare Prescriptions," Empirical Economics, Springer, vol. 13(3), pages 277-97, June.
  3. Bargain, Olivier & Donni, Olivier & Gbakou, Monnet Benoit Patrick, 2009. "The Measurement of Child Costs: Evidence from Ireland," IZA Discussion Papers 4672, Institute for the Study of Labor (IZA).
  4. John Creedy, 2001. "Indirect tax reform and the role of exemptions," Fiscal Studies, Institute for Fiscal Studies, vol. 22(4), pages 457-486., December.
  5. William A. Barnett & Ousmane Seck, 2008. "Rotterdam model versus almost ideal demand system: will the best specification please stand up?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(6), pages 795-824.
  6. Newbery, David M, 1995. "The Distributional Impact of Price Changes in Hungary and the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(431), pages 847-63, July.
  7. Paolo Liberati, 2001. "The Distributional Effects of Indirect Tax Changes in Italy," International Tax and Public Finance, Springer, vol. 8(1), pages 27-51, January.
  8. David Madden, 2009. "Distributional Characteristics for Ireland: A Note," Working Papers 200910, School Of Economics, University College Dublin.
  9. Creedy, John, 1998. "The Welfare Effect on Different Income Groups of Indirect Tax Changes and Inflation in New Zealand," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 373-83, December.
  10. Bart Hobijn & David Lagakos, 2003. "Inflation inequality in the United States," Staff Reports 173, Federal Reserve Bank of New York.
  11. King, Mervyn A., 1983. "Welfare analysis of tax reforms using household data," Journal of Public Economics, Elsevier, vol. 21(2), pages 183-214, July.
  12. Eithne Murphy & Eoghan Garvey, 2008. "The inadequacy of cost of living indices based on subjective preferences: an ethical and methodological critique," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(6), pages 745-754.
  13. Christopher T. Whelan & Bertrand Maître, 2010. "Protecting the vulnerable: poverty and social exclusion in ireland as the economic crisis emerged," Working Papers 201023, Geary Institute, University College Dublin.
  14. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
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Cited by:
  1. O'Donoghue, Cathal & Loughrey, Jason & Morrissey, Karyn, 2013. "Using the EU-SILC to Model the Impact of the Economic Crisis on Inequality," IZA Discussion Papers 7242, Institute for the Study of Labor (IZA).

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