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Using the EU-SILC to Model the Impact of the Economic Crisis on Inequality

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Author Info

  • O'Donoghue, Cathal

    ()
    (Teagasc Rural Economy Research Centre)

  • Loughrey, Jason

    ()
    (Teagasc Rural Economy Research Centre)

  • Morrissey, Karyn

    ()
    (University of Liverpool)

Abstract

In this paper we attempted to chart the impact of the early part of Ireland's economic crisis from 2008-2010 on the distribution of income. In order to decompose the impact of components of income, we utilised a microsimulation methodology the EU-SILC User Database. In order to do this we had to develop a simulation based methodology to disaggregate the main 6 benefit variables in the EU-SILC into 17 used in our tax-benefit model. Validating, our results were positive, giving us confidence in our methodology. We utilised the framework to model changes to the level of income inequality from the period just before the crisis in 2004 to after the crisis in 2010. In terms of the impact of the economic crisis, we found that the income inequality fell in the early part of the crisis, but rose steadily and then rapidly. Much of this change was due to rising inequality of market incomes, (even when discounting unemployment). This was due to the differential effect of the downturn on different sectors where some sectors such as the construction and public sectors were significantly hit, while the international traded sectors have been relatively immune from the downturn and have seen continued growth. The impact of the tax-benefit system has been to mitigate this upward pressure, with a gradual rise in the redistributive effect of the tax-benefit system driven by an increase in demand on the benefits side and increased progressivity on the tax side.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7242.

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Length: 29 pages
Date of creation: Feb 2013
Date of revision:
Publication status: published in: IZA Journal of European Labor Studies, 2013, 2:23
Handle: RePEc:iza:izadps:dp7242

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Keywords: macro-economic change; microsimulation; inequality;

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References

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  1. Sarah Voitchovsky & Bertrand Maitre & Brian Nolan, 2012. "Wage Inequality in Ireland’s “Celtic Tiger” Boom," The Economic and Social Review, Economic and Social Studies, Economic and Social Studies, vol. 43(1), pages 99–133.
  2. Callan, Tim & Keane, Claire & Walsh, John R. & Lane, Marguerita, 2010. "From Data to Policy Analysis: Tax-Benefit Modelling using SILC 2008," Papers, Economic and Social Research Institute (ESRI) WP359, Economic and Social Research Institute (ESRI).
  3. Tim Callan & Brian Nolan & Claire Keane & John R. Walsh, 2010. "Inequality and the Crisis: The Distributional Impact of Tax Increases and Welfare and Public Sector Pay Cuts," The Economic and Social Review, Economic and Social Studies, Economic and Social Studies, vol. 41(4), pages 461-471.
  4. 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), Economic and Social Research Institute (ESRI), vol. 2012(4-Winter ).
  5. Callan, Tim & Keane, Claire, 2009. "Non-Cash Benefits and the Distribution of Economic Welfare," IZA Discussion Papers 3954, Institute for the Study of Labor (IZA).
  6. Jason Loughrey & Cathal O’Donoghue, 2012. "The Welfare Impact of Price Changes on Household Welfare and Inequality 1999-2011," The Economic and Social Review, Economic and Social Studies, Economic and Social Studies, vol. 43(1), pages 31–66.
  7. Figari, Francesco & Levy, Horacio & Sutherland, Holly, 2007. "Using the EU-SILC for policy simulation: prospects, some limitations and some suggestions," EUROMOD Working Papers EM1/07, EUROMOD at the Institute for Social and Economic Research.
  8. André Decoster & Jason Loughrey & Cathal O'Donoghue & Dirk Verwerft, 2010. "How regressive are indirect taxes? A microsimulation analysis for five European countries," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(2), pages 326-350.
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Cited by:
  1. Bargain, Olivier & Callan, Tim & Doorley, Karina & Keane, Claire, 2013. "Changes in Income Distribution and the Role of Tax-benefit Policy During the Great Recession: An International Perspective," EUROMOD Working Papers em21/13, EUROMOD at the Institute for Social and Economic Research.

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