Accounting for differences in income inequality across countries: tax-benefit policy, labour market structure, returns and demographics
Authors
Denisa M. Sologon, Philippe Van Kerm, Jinjing Li, Cathal O'Donoghue
Publication Date
Oct 2020
Summary
This paper presents a framework for studying international differences in the distribution of household income. Integrating micro-econometric and micro-simulation approaches in a decomposition analysis, it quantifies the role of tax-benefit systems, employment and occupational structures, labour and financial market returns, and demographic composition in accounting for differences in income inequality across countries. Building upon EUROMOD (the European tax-benefit calculator) and its harmonised datasets, the model is portable and
can be implemented for cross-country comparisons between any participating country. An application to the UK and Ireland—two countries that have much in common while displaying different levels of inequality—shows that differences in tax-benefit rules between the two countries account for roughly half of the observed difference in disposable household income inequality. Demographic differences play negligible roles. The Irish tax-benefit system is more
redistributive than UK’s due to a higher tax progressivity and higher average transfer rates. These are largely attributable to policy parameter differences, but also to differences in pre-tax, pre-transfer income distributions.
DOI
https://doi.org/10.1007/s10888-020-09454-7
Publication type
Journal Article
Research area
Tax and benefit systems
Notes
Online Early; Open Access; © The Author(s) 2020; This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes weremade. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommonshorg/licenses/by/4.0/.
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