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This paper studies the cross-country differences in conventional measures of inequality of opportunity in Europe in the space of individual disposable incomes. Exploiting…
This paper studies the cross-country differences in conventional measures of inequality of opportunity in Europe in the space of individual disposable incomes. Exploiting two recent waves of the EUSILC database reporting information on family background (2005 and 2011), we provide estimates of inequality of opportunity in about 30 European countries for two sufficiently distant data points, allowing a check of consistency for country rankings. In addition, we exploit two observations available for most of the countries to explore the relationship between many institutional dimensions and inequality of opportunity, finding evidence of negative correlation with educational expenditure (especially at the pre-primary level) and passive labour market policies.
We investigate the reasons why income inequality is so high in Spain in the EU context. We first show that the differential in inequality with Germany and other countries…
We investigate the reasons why income inequality is so high in Spain in the EU context. We first show that the differential in inequality with Germany and other countries is driven by inequality among households who participate in the labor market. Then, we conduct an analysis of different household income aggregates. We also decompose the inter-country gap in inequality into characteristics and coefficients effects using regressions of the Recentered Influence Function for the Gini index. Our results show that the higher inequality observed in Spain is largely associated with lower employment rates, higher incidence of self-employment, lower attained education, as well as the recent increase in the immigration of economically active households. However, the prevalence of extended families in Spain contributes to reducing inequality by diversifying income sources, with retirement pensions playing an important role. Finally, by comparing the situations in 2008 and 2012, we separate the direct effects of the Great Recession on employment and unemployment benefits, from other more permanent factors (such as the weak redistributive effect of taxes and family or housing allowances, or the roles of education and the extended family).
The secondary analysis of the European Union Statistics on Income and Living Conditions (EU-SILC) is used to examine inequality in the United Kingdom compared with other…
The secondary analysis of the European Union Statistics on Income and Living Conditions (EU-SILC) is used to examine inequality in the United Kingdom compared with other European Union (EU) countries and to analyse how inequality has changed over the period from the start of the great financial crisis in 2008–2015. The analysis compares inequality in market income, gross income and disposable incomes, and measured inequality using the Gini coefficient, 80/20 and 90/10 ratios. It includes an analysis of the impact of cash benefits and direct taxes on market income and how the composition of households in different parts of the income distribution has changed over time. In addition, inequality within the EU is explored. The chapter concludes with a discussion of what contribution the EU itself through its own institutions and policies plays in mitigating market inequalities. We find that the distribution of market income in the United Kingdom is comparatively unequal, but the UK’s relative position on disposable income is greatly improved, due to an effective system of direct taxes and transfers. The conclusions remain broadly similar for all the inequality indices that are considered. There is evidence that households with children have moved down the distribution between 2008 and 2014 and aged households have moved up the distribution in most EU countries including the United Kingdom. The chapter concludes that EU policies have relatively little impact on inequality and that inequalities can really only be tackled using national redistributive policies.
This chapter investigates to what extent the tax and transfer systems in Europe protect households at different income levels against losses in current income caused by…
This chapter investigates to what extent the tax and transfer systems in Europe protect households at different income levels against losses in current income caused by economic downturns like the present financial crisis. We use a multi-country microsimulation model to analyse how shocks on market income and employment are mitigated by taxes and transfers. We find that the aggregate redistributive effect of the tax and transfer systems increases in response to the shocks. But the extent to which households are protected differs across income levels and countries. In particular, there is little stabilization of disposable income for low-income groups in Eastern and Southern European countries.
This paper produces a comprehensive assessment of income redistribution to the working-age population, covering OECD countries over the last two decades. Redistribution is…
This paper produces a comprehensive assessment of income redistribution to the working-age population, covering OECD countries over the last two decades. Redistribution is quantified as the relative reduction in market income inequality achieved by personal income taxes (PIT), employees’ social security contributions, and cash transfers, based on household-level micro-data. A detailed decomposition analysis uncovers the respective roles of size, tax progressivity, and transfer targeting for overall redistribution, the respective role of various categories of transfers for transfer redistribution; as well as redistribution for various income groups. The paper shows a widespread decline in redistribution across the OECD, both on average and in the majority of countries for which data going back to the mid-1990s are available. This was primarily associated with a decline in cash transfer redistribution while PIT played a less important and more heterogeneous role across countries. In turn, the decline in the redistributive effect of cash transfers reflected a decline in their size and in particular by less redistributive insurance transfers. In some countries, this was mitigated by more redistributive assistance transfers but the resulting increase in the targeting of total transfers was not sufficient to prevent transfer redistribution from declining.
European countries have the world’s most redistributive tax and transfer systems. While they have been well equipped to deal with vertical inequality – fostering…
European countries have the world’s most redistributive tax and transfer systems. While they have been well equipped to deal with vertical inequality – fostering redistribution from the rich to the poor – less is known about their performance in dealing with horizontal inequality, that is, in redistributing across socioeconomic groups. In a context where individuals may not only care about vertical redistribution, but also about the economic situation of the specific groups they belong to, the horizontal dimension of redistribution becomes politically salient and can be a source of social tensions. The authors analyse the performance of the 28 EU countries for redistribution across (i) age groups; (ii) occupational groups; and (iii) household types over the period 2007–2014 using counterfactual simulation techniques. We find a significant degree of heterogeneity across countries: changes in the tax and transfer system have particularly hit the young and the losers of occupational change in Eastern European countries, while households with greater economic security have benefited from these changes. The findings of this study suggest that horizontal inequality is a dimension which policy-makers should take into account when reforming tax and transfer systems.
Recent evidence on the impact of the crisis on developed countries shows that changes in income inequality and poverty have been relatively small in spite of the…
Recent evidence on the impact of the crisis on developed countries shows that changes in income inequality and poverty have been relatively small in spite of the macroeconomic heterogeneity of the recession across different economies. However, when evaluating individual perceptions linked to the crisis any changes in the chances to scale up or lose ground in the income ladder are also crucial. Our aim in this paper is to analyze to what extent the recession has had an impact on individual equivalent incomes and, in particular, on the prevalence of downward mobility in two developed countries where job losses have been large. We find that income losses have increased, particularly in Spain, and while age and education are key determinants of the probability of experiencing an income loss in both countries, the presence of children only increases the probability of an income loss in Spain.
The purpose of this paper is to compare responses of house prices in three important markets when faced with permanent and temporary shocks to income. It additionally…
The purpose of this paper is to compare responses of house prices in three important markets when faced with permanent and temporary shocks to income. It additionally decomposes each historical house price series into its permanent, temporary and deterministic components.
Using quarterly data over 1973‐2008, two‐variable systems of house prices and income are specified for three major house‐owning economies: New Zealand (NZ), the United Kingdom (UK) and the United States of America (USA).
NZ and UK housing markets are sensitive to both permanent and temporary shocks to income, while the US market reacts to temporary shocks with the permanent component having a largely insignificant role to play in house price composition. In NZ, the temporary component of house prices has tended to be positive over time, pushing prices higher than they would have been otherwise; while in the UK, both permanent and temporary components have tended to reinforce each other.
The paper uses state‐of‐the‐art methods to analyse the relationships between income and house prices in three economies.
The Government of Namibia has traditionally used fiscal (especially tax) policy as an instrument for annual budget formulation. Marginal tax rates for profits and various…
The Government of Namibia has traditionally used fiscal (especially tax) policy as an instrument for annual budget formulation. Marginal tax rates for profits and various income brackets have been changed back and forth in response to changes in economic conditions. However, to date, no attempt has been made to evaluate the effectiveness of these reforms in achieving the broad national economic goals, in general, and the potential effects on government revenue in the short, medium and long-run periods, in particular. The purpose of this paper is to fill this information gap by analysing the implication of the 2008 zero-rating of value added tax (VAT) on basic commodities for aggregate demand and government revenue.
The study uses an analytical framework based on economic theory which posits that in an open economy, which trades with the rest of the world, aggregate demand for goods and services is made up of consumption demand, investment demand, government demand and net exports and that real sector equilibrium is attained when aggregate supply of goods and services is equal to aggregate demand for goods and services.
Using the Namibia Household Income and Expenditure Survey results, the annual loss in government revenue attributable to this policy is, ceteris paribus, estimated to be N$310.4 million. With a marginal propensity to consume out of disposable income of 0.89, total expenditure by households on goods and services is likely to increase by N$276.3 million per annum. In the medium-to-long-run, national income will have increased by N$303.9 million per annum. Taxes which are responsive to changes in the level of national income will have increased by N$85.7 million, compensating for just over one quarter of the estimated loss in government revenue of N$310.4 million.
The study has used a partial equilibrium model as opposed to computable general equilibrium model, which provides a consistent framework that meets most of the sectoral and institutional data requirements for the simple reason that a social accounting matrix which can be used readily to connect data from different sources, such as national accounts and household surveys and would thus have been ideal model for analysing the impacts of the VAT tax reform has not been developed for Namibia.
The paper provides a number of practical policy options available for government including, but not limited to, increasing direct taxes, VAT rate on specific (luxury) goods and services and statutory VAT rate on all other commodities not zero-rated, other taxes such as taxes; and borrowing from external sources.
It is established that zero-rating VAT on all the basic commodities in 2008 reduces the VAT paid by all Namibian households by N$310.4 million per year, which represents the annual increase in the disposable income of all households. And with a marginal propensity to consume out of disposable income of 0.89, total expenditure by households on goods and services will increase by N$276.3 million per year.
This paper presents the first attempt at evaluating the effectiveness of tax (VAT) policy reforms in Namibia in achieving the broad national economic goals, in general, and the potential effects on government revenue in the short, medium and long-run periods, in particular.
The purpose of this paper is to examine the distributional implications of using full income instead of disposable income in the analysis of economic inequality. For that…
The purpose of this paper is to examine the distributional implications of using full income instead of disposable income in the analysis of economic inequality. For that purpose the authors employ a very extensive list of noncash incomes with the aim of examining the distributional effects of noncash incomes and reassessing the level and structure of inequality under a comprehensive definition of income.
The study employs the microdata of the 2004/2005 Greek Household Budget Survey. The value of non‐monetary components was estimated using the appropriate statistical methods and econometric techniques. Tools of income distribution analysis were utilized for assessing the distributional consequences of adopting an extended definition of income.
The results indicate that both private and public noncash incomes are far more equally distributed than monetary income, but the inequality‐reducing effect of publicly‐provided services is stronger. Noncash incomes appear to accrue more heavily to younger and older individuals.
The analysis uses the same equivalence scales for the analysis of both monetary income and full income. This treatment may be open to criticism in the case of in‐kind public transfers. Due to data limitations the authors do not take into account home‐produced services, as well as several in‐kind transfers such as the provision of elderly care.
The study argues in favor of moving beyond disposable income for measuring inequality and for the purposes of social policy design.
Even if several studies take into account particular noncash items, there is an important void in the distributional analysis of full income.