We combine two decomposition approaches (Bourguignon et al. 2008 and Bargain et al. 2010) to understand changes in the EU disposable income distribution over the last decade. First, we explore in several EU member states whether policy “reforms” were more or less effective than a full indexation of the 2001 system would have been in reducing poverty and inequality. We further extend the decomposition framework by decomposing the effect of policy changes into structural policy changes and indexation effect, which allows us to estimate the extent of benefit erosion and fiscal drag across countries. We find that in most countries, policy changes have helped reducing the risk of poverty. Then, for the UK, we explore further changes in the income distribution attributed by changes in the distribution of endowments and socio-demographic characteristics, and the return to these endowments. The net effect of earnings, years of schooling, employment, private pensions and investment income is to increase disposable incomes in 2001-2007; but for the period 2007-2011, the effect is strongly negative especially at the bottom of the distribution. However, once accounting for all of these factors, a large part of the total change is left unexplained.
Presented by:
Iva Valentinova Tasseva (ISER)
Date & time:
February 12, 2014 1:00 pm
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