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Analysing the effects of tax-benefit reforms on income distribution: a decomposition approach

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  • Olivier Bargain

    ()

  • Tim Callan

    ()

Abstract

To assess the impact of tax-benefit policy changes on income distribution over time, we suggest a decomposition methodology based on counterfactual simulations. First, it provides an absolute measure of the impact of tax-benefit changes on inequality, which combines changes in policy structure (rules, rates, etc.) and changes in monetary parameters (benefit amounts, tax bands, etc.) against a distributionally-neutral benchmark, i.e., a situation where monetary parameters are nominally adjusted in line with income growth. We apply this measure to analyze the effect of recent policy changes in twelve European countries. Secondly, we focus on France and Ireland to assess the relative role of policy changes compared to changes in pre-tax income (distribution, composition, demographic structure, etc.). We conduct this exercise for a battery of poverty and inequality measures and check the sensitivity of the results to the decomposition order.

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File URL: http://hdl.handle.net/10.1007/s10888-008-9101-4
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Bibliographic Info

Article provided by Springer in its journal The Journal of Economic Inequality.

Volume (Year): 8 (2010)
Issue (Month): 1 (March)
Pages: 1-21

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Handle: RePEc:kap:jecinq:v:8:y:2010:i:1:p:1-21

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Web page: http://springerlink.metapress.com/link.asp?id=111137

Related research

Keywords: Tax-benefit policy; Inequality; Poverty; Decomposition; Microsimulation; H23; H53; I32;

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References

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Citations

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Cited by:
  1. Andreas Peichl & Nico Pestel & Hilmar Schneider, 2010. "Does Size Matter? The Impact of Changes in Household Structure on Income Distribution in Germany," CESifo Working Paper Series 3219, CESifo Group Munich.
  2. Callan, Tim & Nolan, Brian & Keane, Claire & Savage, Michael & Walsh, John R., 2013. "Crisis, Response and Distributional Impact: The Case of Ireland," Papers WP456, Economic and Social Research Institute (ESRI).
  3. Bargain, Olivier & Dolls, Mathias & Immervoll, Herwig & Neumann, Dirk & Peichl, Andreas & Pestel, Nico & Siegloch, Sebastian, 2011. "Tax Policy and Income Inequality in the U.S., 1978-2009: A Decomposition Approach," IZA Discussion Papers 5910, Institute for the Study of Labor (IZA).
  4. Herwig Immervoll & Linda Richardson, 2011. "Redistribution Policy and Inequality Reduction in OECD Countries: What Has Changed in Two Decades?," OECD Social, Employment and Migration Working Papers 122, OECD Publishing.
  5. Magda, Iga & Bukowski, Maciej & Buchholz, Sonia & Lewandowski, Piotr & Chrostek, Paweł & Kamińska, Agnieszka & Lis, Maciej & Potoczna, Monika & Myck, Michał & Kundera, Michał & Oczkowska, Monika, 2013. "Employment in Poland 2011 - Poverty and jobs," MPRA Paper 50185, University Library of Munich, Germany.
  6. Deutsch, Joseph & Fusco, Alessio & Silber, Jacques, 2012. "The BIP trilogy (bipolarization, inequality and polarization): One saga but three different stories," Economics Discussion Papers 2012-49, Kiel Institute for the World Economy.
  7. Jeff Larrimore & Richard V. Burkhauser & Philip Armour, 2013. "Accounting for Income Changes over the Great Recession (2007-2010) Relative to Previous Recessions: The Importance of Taxes and Transfers," NBER Working Papers 19699, National Bureau of Economic Research, Inc.
  8. Manos Matsaganis & Chrysa Leventi, 2014. "Distributive Effects of the Crisis and Austerity in Seven EU Countries," ImPRovE Working Papers 14/04, Herman Deleeck Centre for Social Policy, University of Antwerp.
  9. Guillaume Allègre, 2012. "Work, family or state ? from wage inequalitie ans in-work poverty in a european cross-country perspective," Documents de Travail de l'OFCE 2012-12, Observatoire Francais des Conjonctures Economiques (OFCE).
  10. Thor O. Thoresen & Zhiyang Jia & Peter J. Lambert, 2013. "Distributional benchmarking in tax policy evaluations," Discussion Papers 765, Research Department of Statistics Norway.
  11. Duffy, David & FitzGerald, John & Timoney, Kevin & Byrne, David, 2013. "Quarterly Economic Commentary, Winter 2013," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20134, March.
  12. Leventi, Chrysa & Matsaganis, Manos, 2013. "Distributional Implications of the Crisis in Greece in 2009-2012," EUROMOD Working Papers EM14/13, EUROMOD at the Institute for Social and Economic Research.

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