The distributional effects of tax-benefit policies under New Labour : a Shapley decomposition

Using counterfactual microsimulations, Shapley decompositions of time change in inequality and
poverty indices make it possible to disentangle and quantify the relative effect of tax-benefi…t policy
changes, compared to all other effects including shifts in the distribution of market income. Using this
approach also helps to clarify the different issues underlying the distributional evaluation of policy
reforms. An application to the UK (1998-2001) con…firms previous fi…ndings that inequality and depth
of poverty would have increased under the …first New Labour government, had important reforms like
the extensions of income support and tax credits not been implemented. These reforms have also
contributed to substantially reduce poverty among families with children and pensioners.