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Analysing the Effects of Tax-benefit Reforms on Income Distribution: A decomposition Approach

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Author Info
Olivier Bargain () (University College Dublin (UCD))
Tim Callan () (Economic and Social Research Institute (ESRI))

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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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Publisher Info
Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP197.

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Length: 15 pages
Date of creation: May 2007
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Handle: RePEc:esr:wpaper:wp197

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Related research
Keywords: tax-benefit policy; inequality; poverty; decomposition; microsimulation;

Other versions of this item:

Find related papers by JEL classification:
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
I32 - Health, Education, and Welfare - - Welfare and Poverty - - - Measurement and Analysis of Poverty

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