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The Welfare Impact of Price Changes on Household Welfare and Inequality 1999-2011

  • JASON LOUGHREY

    (Teagasc/National University of Ireland Galway)

  • CATHAL O’DONOGHUE

    (Teagasc)

This paper attempts to use applied micro-economic research to understand the impact of price changes over the period 1999-2011 in Ireland. This measure combines an efficiency component using a Linear Expenditure System (LES) and an equity component using the Atkinson Index of Inequality. The efficiency component includes the behavioural response to price changes for non-subsistence expenditures thereby producing a Cost of Living Index. The Atkinson Index of Inequality produces an inequality measure and this is combined with the Cost of Living Index to produce an overall welfare measure. This extends upon the existing Irish literature on this issue by accounting for this broader set of components. The results show that changes in the cost of living have differed substantially between households both in terms of demographics and the position of the household in the income distribution and that behavioural response can potentially improve the welfare position of households in response to price changes in most years.

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File URL: http://www.esr.ie/vol43_1/02%20Loughrey.pdf
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Article provided by Economic and Social Studies in its journal Economic and Social Review.

Volume (Year): 43 (2012)
Issue (Month): 1 ()
Pages: 31–66

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Handle: RePEc:eso:journl:v:43:y:2012:i:1:p:31-66
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  1. Creedy, John, 1998. "The Welfare Effect on Different Income Groups of Indirect Tax Changes and Inflation in New Zealand," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 373-83, December.
  2. Creedy, John & Dixon, Robert, 1998. "The Relative Burden of Monopoly on Households with Different Incomes," Economica, London School of Economics and Political Science, vol. 65(258), pages 285-93, May.
  3. Christopher T. Whelan & Bertrand Maître, 2010. "Protecting the vulnerable: poverty and social exclusion in ireland as the economic crisis emerged," Working Papers 201023, Geary Institute, University College Dublin.
  4. Olivier Bargain & Olivier Donni & Monnet Gbakou, 2010. "The Measurement of Child Costs: Evidence from Ireland," The Economic and Social Review, Economic and Social Studies, vol. 41(1), pages 1-20.
  5. King, Mervyn A., 1983. "Welfare analysis of tax reforms using household data," Journal of Public Economics, Elsevier, vol. 21(2), pages 183-214, July.
  6. Bart Hobijn & David Lagakos, 2003. "Inflation inequality in the United States," Staff Reports 173, Federal Reserve Bank of New York.
  7. Paolo Liberati, 2001. "The Distributional Effects of Indirect Tax Changes in Italy," International Tax and Public Finance, Springer, vol. 8(1), pages 27-51, January.
  8. David Madden, 2009. "Distributional Characteristics for Ireland: A Note," Working Papers 200910, School Of Economics, University College Dublin.
  9. William A. Barnett & Ousmane Seck, 2008. "Rotterdam model versus almost ideal demand system: will the best specification please stand up?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(6), pages 795-824.
  10. Roberts, Kevin, 1980. "Price-Independent Welfare Prescriptions," Empirical Economics, Springer, vol. 13(3), pages 277-97, June.
  11. John Creedy, 2001. "Indirect tax reform and the role of exemptions," Fiscal Studies, Institute for Fiscal Studies, vol. 22(4), pages 457-486., December.
  12. Eithne Murphy & Eoghan Garvey, 2008. "The inadequacy of cost of living indices based on subjective preferences: an ethical and methodological critique," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(6), pages 745-754.
  13. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  14. Newbery, David M, 1995. "The Distributional Impact of Price Changes in Hungary and the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(431), pages 847-63, July.
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