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Changes in Income Distributions and the Role of Tax-benefit Policy During the Great Recession: An International Perspective

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  • Bargain, Olivier
  • Callan, Tim
  • Doorley, Karina
  • Keane, Claire

Abstract

This paper examines the impact on inequality and poverty of the economic crisis in four European countries, namely France, Germany, the UK and Ireland, and the contribution of tax and benefit policy changes. The period examined, 2008 to 2010, was one of great economic turmoil, yet it is unclear whether changes in inequality and poverty rates over this time period were mainly driven by changes in market income distributions or by tax- benefit policy reforms. We disentangle these effects by producing counterfactual ("no reform") scenarios using tax-benefit microsimulation and representative household surveys of each country. For the period under study, we find that the policy reaction has contributed to stabilizing or even decreasing inequality and relative poverty in the UK, France and especially in Ireland, a country where rising unemployment would have otherwise increased poverty. Market income inequality has nonetheless pushed up inequality and relative poverty in France. Relative poverty and, notably, child poverty, have increased in Germany due to policy responses combined with the increasing inequality of market income.

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Bibliographic Info

Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP474.

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Date of creation: Jan 2014
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Handle: RePEc:esr:wpaper:wp474

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Keywords: Tax-benefit policy; Inequality; Poverty; Decomposition; Microsimulation; Crisis.;

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References

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  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).
  2. Dardanoni, Valentino & Lambert, Peter J., 2002. "Progressivity comparisons," Journal of Public Economics, Elsevier, vol. 86(1), pages 99-122, October.
  3. Olivier Bargain & Tim Callan, 2007. "Analysing the Effects of Tax-benefit Reforms on Income Distribution - A Decomposition Approach," Working Papers 200713, School Of Economics, University College Dublin.
  4. Brenke, Karl & Rinne, Ulf & Zimmermann, Klaus F., 2011. "Short-Time Work: The German Answer to the Great Recession," IZA Discussion Papers 5780, Institute for the Study of Labor (IZA).
  5. Callan,Tim & Keane,Claire & Savage,Michael & Walsh,John R., 2012. "Distributional Impact of Tax, Welfare and Public Sector Pay Policies: 2009-2012," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2012(4-Winter ).
  6. Bruckmeier, Kerstin & Wiemers, Jürgen, 2011. "A new targeting - a new take-up? : non-take-up of social assistance in Germany after social policy reforms," IAB Discussion Paper 201110, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  7. Holly Sutherland & Francesco Figari, 2013. "EUROMOD: the European Union tax-benefit microsimulation model," International Journal of Microsimulation, Interational Microsimulation Association, vol. 1(6), pages 4-26.
  8. Tom Clark & Andrew Leicester, 2004. "Inequality and two decades of British tax and benefit reform," Fiscal Studies, Institute for Fiscal Studies, vol. 25(2), pages 129-158, June.
  9. Doorley, Karina & Eichhorst, Werner & Kendzia, Michael J., 2013. "Report No. 52: The Social and Employment Situation in Ireland (Update February 2013)," IZA Research Reports 52, Institute for the Study of Labor (IZA).
  10. Olivier Bargain & Herwig Immervoll & Andreas Peichl & Sebastian Siegloch, 2012. "Distributional consequences of labor-demand shocks: the 2008–2009 recession in Germany," International Tax and Public Finance, Springer, vol. 19(1), pages 118-138, February.
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Cited by:
  1. Callan, Tim & Nolan, Brian & Keane, Claire & Savage, Michael & Walsh, John R., 2013. "Crisis, Response and Distributional Impact: The Case of Ireland," IZA Discussion Papers 7481, Institute for the Study of Labor (IZA).
  2. 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.
  3. John Hills & Alari Paulus & Holly Sutherland & Iva Tasseva, 2014. "A lost decade? Decomposing the effect of 2001-11 tax-benefit policy changes on the income distribution in EU countries," ImPRovE Working Papers 14/03, Herman Deleeck Centre for Social Policy, University of Antwerp.

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