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Accounting for the distributional effects of the 2007-2008 crisis and the Economic Adjustment Program in Portugal

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  • SOLOGON Denisa
  • ALMEIDA Vanda
  • VAN KERM Philippe

Abstract

This paper develops a new method to model the household disposable income distribution and decompose changes in this distribution (or functionals such as inequality measures) over time. It integrates both a micro-econometric and microsimulation approaches, combining a flexible parametric modelling of the distribution of market income with the EUROMOD microsimulation model to simulate the value of taxes and benefits. The method allows for the quantification of the contributions of four main factors to changes in the disposable income distribution between any two years: (i) labour market structure; (ii) returns; (iii) demographic composition; and (iv) tax-benefit system. We apply this new framework to the study of changes in the income distribution in Portugal between 2007 and 2013, accounting for the distributional effects of the 2007-2008 crisis and aftermath policies, in particular the Economic Adjustment Program (EAP). Results show that these effects were substantial and reflected markedly different developments over two periods: 2007-2009, when stimulus packages determined important income gains for the bottom of the distribution and a decrease in income inequality; 2010-2013, when the crisis and austerity measures took a toll on the incomes of Portuguese households, particularly those at the bottom and top of the distribution, leading to an increase in income inequality.

Suggested Citation

  • SOLOGON Denisa & ALMEIDA Vanda & VAN KERM Philippe, 2019. "Accounting for the distributional effects of the 2007-2008 crisis and the Economic Adjustment Program in Portugal," LISER Working Paper Series 2019-05, Luxembourg Institute of Socio-Economic Research (LISER).
    • Handle: RePEc:irs:cepswp:2019-05
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    2. Cathal O'Donoghue & Denisa M. Sologon & Iryna Kyzyma & John McHale, 2020. "Modelling the Distributional Impact of the COVID‐19 Crisis," Fiscal Studies, John Wiley & Sons, vol. 41(2), pages 321-336, June.
    3. Makarski, Krzysztof & Tyrowicz, Joanna, 2023. "Preference for redistribution during structural change with labor mobility frictions," European Journal of Political Economy, Elsevier, vol. 77(C).
    4. Nerijus Černiauskas & Denisa M. Sologon & Cathal O’Donoghue & Linas Tarasonis, 2022. "Income Inequality and Redistribution in Lithuania: The Role of Policy, Labor Market, Income, and Demographics," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 68(S1), pages 131-166, April.
    5. Nerijus Cerniauskas & Denisa M. Sologon & Cathal O’Donoghue & Linas Tarasonis, 2020. "Changes in income inequality in Lithuania: the role of policy, labour market structure, returns and demographics," Bank of Lithuania Working Paper Series 71, Bank of Lithuania.

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    More about this item

    Keywords

    income distribution; inequality; decompositions; microsimulation; tax-benefit policies; crisis; austerity; overtime comparison;
    All these keywords.

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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