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Analysing the effects of tax-benefit reforms on income distribution : a decomposition approach

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Author(s)
Bargain, Olivier 
Callan, Tim 
Uri
http://hdl.handle.net/10197/957
Date Issued
August 2007
Date Available
12T16:51:20Z March 2009
Abstract
To assess the impact of tax-benefit policy changes on income distribution over time, we suggest a methodology based on counterfactual simulations. We start by decomposing changes in inequality/poverty indices into three contributions: reforms of the tax-benefit structure (rules, rates, etc.), changes in nominal levels of market incomes and tax-benefit parameters (benefit amounts, tax bands, etc.), and all other changes in the underlying population (market income inequality, demographic composition, employment level, etc.). Then, the decomposition helps to extract an absolute measure of the impact of tax-benefit changes on inequality when evaluated against a distributionally-neutral benchmark, i.e. a situation where tax-benefit parameters are adjusted in line with income growth. We apply this measure to assess recent policy changes in twelve European countries. Finally, the full decomposition allows quantifying the relative role of policy changes compared to all other factors. We provide an illustration on France and Ireland and check the sensitivity of the results to the decomposition order.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
University College Dublin. Geary Institute
Series
UCD Centre for Economic Research Working Paper Series
WP07/13
UCD Geary Institute Discussion Paper Series
WP/28/2007
Copyright (Published Version)
UCD School of Economics 2007
Keywords
  • Tax-benefit policy

  • Inequality

  • Poverty

  • Decomposition

  • Microsimulation

Classification
H23
H53
I32
Subject – LCSH
Taxation
Income distribution
Decomposition (Mathematics)
Web versions
http://www.ucd.ie/economics/research/papers/2007/WP07.13.pdf
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
https://creativecommons.org/licenses/by-nc-sa/1.0/
Owning collection
Economics Working Papers & Policy Papers
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Acquisition Date
Feb 7, 2023
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