Decomposition analysis of distributive policies using behavioural simulations

Author

Publication Date

Jun 2012

Abstract

For policy makers and analysts, it is important to isolate the redistributiveimpact of tax-benefit reforms from changes in the environment in which policiesoperate. When actual reforms are motivated by work incentives, it is also crucial toevaluate behavioural responses and the distributional consequences thereof. For thatpurpose, I embed counterfactual simulations in a formal decomposition framework toquantify the relative roles of (i) direct tax-benefit policy changes, (ii) indirect policyeffects due to labour supply responses to the reforms and (iii) all other factors affectingincome distribution over time. An application to the UK shows that the redistributivereforms of the 1998–2001 period have offset much of the rise in market incomeinequality and contributed to a strong decline in child poverty and poverty amongstsingle parent households. In the latter group, a third of the headcount poverty reduction(and half of the reduction in the depth of poverty) is on account of the very largeincentive effect of the policy changes.

Volume and page numbers

Volume: 19 , p.708 -731

DOI

http://dx.doi.org/10.1007/s10797-011-9203-y

Publication type

Journal Article

Research areas

Family and gender, Population changes and labour market dynamics, Tax and benefit systems

Links

http://serlib0.essex.ac.uk/record=b1617625~S5

Notes

Albert Sloman Library Periodicals *restricted to Univ. Essex registered users*

Cid:521359

Publications