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A lost decade? Decomposing the effect of 2001-11 tax-benefit policy changes on the income distribution in EU countries

Johyn Hills, Alari Paulus, Holly Sutherland and Iva Tasseva

No 14/03, ImPRovE Working Papers from Herman Deleeck Centre for Social Policy, University of Antwerp

Abstract: This paper examines the extent to which tax and benefit policy changes introduced in the period 2001-11 had a poverty- or inequality-reducing effect. We assess whether the period was indeed a “missed opportunity” for policy changes to make a difference to poverty reduction since the Lisbon Treaty, given the general lack of improvement shown by poverty indicators. Our analysis uses the tax-benefit model EUROMOD and covers seven diverse EU countries: Belgium, Bulgaria, Estonia, Greece, Hungary, Italy and the United Kingdom. We apply the Bargain and Callan (2010) decomposition approach, extending it by separating the effect due to structural policy changes and the indexation effect. We find that the latter was typically more effective in alleviating poverty and inequality than changes to the structure of policies. In fact, most of the structural changes that governments introduced, especially in the 2007-11 crisis-onset period, had poverty and inequality-increasing effects. We find considerable variation between countries in how different policy instruments have been adjusted, and in the effects of these adjustments by income, by age and by household composition, showing the importance of understanding them together, rather than discussing just some in isolation.

Keywords: tax-benefit policies; European Union; income distribution; income poverty; microsimulation; EUROMOD (search for similar items in EconPapers)
JEL-codes: D31 H23 H53 I32 (search for similar items in EconPapers)
Date: 2014-06
New Economics Papers: this item is included in nep-eur, nep-pbe and nep-pub
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