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Accounting for Differences in Income Inequality across Countries: Ireland and the United Kingdom

Author

Listed:
  • SOLOGON Denisa
  • VAN KERM Philippe
  • LI Jinjing
  • O'DONOGHUE Cathal

Abstract

This paper proposes a framework for studying international differences in the distribution of household income. Integrating micro-econometric and micro-simulation approaches in a decomposition analysis it quantifies the role of tax-benefit systems, employment and occupational structures, labour prices and market returns, and demographic composition in accounting for differences in income inequality across countries. Building upon EUROMOD (the European tax-benefit calculator) and its harmonized datasets, the model is portable and can be implemented for any cross-country comparisons within the EU. An application to the UK and Ireland?two countries that have much in common while displaying different levels of inequality?shows that differences in tax-benefit rules between the two countries account for roughly half of the observed difference in disposable household income inequality. Demographic differences play negligible roles. The Irish tax-benefit system is more redistributive than UK?s due to a higher tax progressivity and higher average transfer rates. These are largely attributable to policy parameter differences, but also to differences in pre-tax, pre-transfer income distributions.

Suggested Citation

  • SOLOGON Denisa & VAN KERM Philippe & LI Jinjing & O'DONOGHUE Cathal, 2018. "Accounting for Differences in Income Inequality across Countries: Ireland and the United Kingdom," LISER Working Paper Series 2018-01, LISER.
  • Handle: RePEc:irs:cepswp:2018-01
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Callan, Tim & Doorley, Karina & Savage, Michael, 2018. "Inequality in EU crisis countries. How effective were automatic stabilisers?," EUROMOD Working Papers EM10/18, EUROMOD at the Institute for Social and Economic Research.
    2. 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, LISER.
    3. LI Jinjing & LA Hai anh & SOLOGON Denisa, 2019. "Policy, demography and market income volatility: What was shaping income distribution in Australia between 2002 and 2016?," LISER Working Paper Series 2019-02, LISER.

    More about this item

    Keywords

    income inequality; decompositions; cross-national comparisons; microsimulation; tax and transfer policy;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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