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The Covid-19 crisis response helps the poor: the distributional and budgetary consequences of the UK lock-down

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  • Richiardi, Matteo
  • Bronka, Patryk
  • Collado, Diego

Abstract

We nowcast the economic effects of the Covid-19 pandemic and related lock-down measures in the UK and then analyse the distributional and budgetary effects of the estimated individual income shocks, distinguishing between the effects of automatic stabilisers and those of the emergency policy responses. Under conservative assumptions about the exit strategy and recovery phase, we predict that the rescue package will increase the cost of the crisis for the public budget by an additional £26 billion, totalling over £60 billion. However, it will allow to contain the reduction in the average household disposable income to 1 percentage point, and will reduce poverty rate by 1.1 percentage points (at a constant poverty line), with respect to the pre-Covid situation. We also show that this progressive effect is due to the increased generosity of Universal Credit, which accounts for only 20% of the cost of the rescue package.

Suggested Citation

  • Richiardi, Matteo & Bronka, Patryk & Collado, Diego, 2020. "The Covid-19 crisis response helps the poor: the distributional and budgetary consequences of the UK lock-down," Centre for Microsimulation and Policy Analysis Working Paper Series CEMPA5/20, Centre for Microsimulation and Policy Analysis at the Institute for Social and Economic Research.
    • Handle: RePEc:ese:cempwp:cempa5-20
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    Cited by:

    1. Glenn Abela, 2022. "Assessing the impacts of the COVID-19 wage supplement scheme: A microsimulation study," CBM Working Papers WP/06/2022, Central Bank of Malta.
    2. Mike Brewer & Iva Valentinova Tasseva, 2021. "Did the UK policy response to Covid-19 protect household incomes?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(3), pages 433-458, September.
    3. Denisa M. Sologon & Cathal O’Donoghue & Iryna Kyzyma & Jinjing Li & Jules Linden & Raymond Wagener, 2022. "The COVID-19 resilience of a continental welfare regime - nowcasting the distributional impact of the crisis," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(4), pages 777-809, December.
    4. Wright, Gemma & Noble, Michael & Barnes, Helen & Moechtar, Ali & McLennan, David & Anshory Yusuf, Arief & Gasior, Katrin & Muyanto, Ratnawati, 2021. "Estimating the distributional impacts of the COVID-19 pandemic and the remedial tax and benefit policies on poverty in Indonesia," Centre for Microsimulation and Policy Analysis Working Paper Series CEMPA2/21, Centre for Microsimulation and Policy Analysis at the Institute for Social and Economic Research.
    5. Richiardi, Matteo & Collado, Diego & Popova, Daria, 2021. "UKMOD – a new tax-benefit model for the four nations of the UK," Centre for Microsimulation and Policy Analysis Working Paper Series CEMPA7/21, Centre for Microsimulation and Policy Analysis at the Institute for Social and Economic Research.
    6. Richiardi, Matteo & Collado, Diego & Popova, Daria, 2021. "Covid-19 and financial hardship in London," Centre for Microsimulation and Policy Analysis Working Paper Series CEMPA9/21, Centre for Microsimulation and Policy Analysis at the Institute for Social and Economic Research.

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