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

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

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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Paper provided by EUROMOD at the Institute for Social and Economic Research in its series EUROMOD Working Papers with number EM21/13.

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Date of creation: 06 Dec 2013
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Publication status: published
Handle: RePEc:ese:emodwp:em21-13
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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. Karl BRENKE & Ulf RINNE & Klaus F. ZIMMERMANN, 2013. "Short-time work: The German answer to the Great Recession," International Labour Review, International Labour Organization, vol. 152(2), pages 287-305, 06.
  3. Bargain, Olivier & Callan, Tim, 2007. "Analysing the effects of tax-benefit reforms on income distribution: a decomposition approach," EUROMOD Working Papers EM5/07, EUROMOD at the Institute for Social and Economic Research.
  4. Holly Sutherland & Francesco Figari, 2013. "EUROMOD: the European Union tax-benefit microsimulation model," International Journal of Microsimulation, International Microsimulation Association, vol. 1(6), pages 4-26.
  5. 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.
  6. 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 ).
  7. Dardanoni, Valentino & Lambert, Peter J., 2002. "Progressivity comparisons," Journal of Public Economics, Elsevier, vol. 86(1), pages 99-122, October.
  8. 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].
  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. 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.
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