The distributional effects of austerity measures: A comparison of six EU countries.ISER Internal Seminars

We compare the distributional effects of austerity measures that are being introduced in 6 EU countries in the period of large government budget deficits following the 2008 economic downturn. We explore the effects of policy changes presented as “austerity measures” in Estonia, Ireland, Greece, Spain, Portugal and the UK, using the EU microsimulation model EUROMOD and the Irish national model, SWITCH. The six countries have chosen different policy mixes to achieve varying degrees of fiscal consolidation. We focus on the first round effects of increases in personal taxes, cuts in spending on cash benefits and reductions in public sector pay across the distributions of household income. There is a range of important conceptual and consistency issues to be addressed when doing such analysis, particularly in a comparative setting. These include how to identify “austerity measures” in a consistent manner, the relevant time periods to consider, the assumptions behind the counterfactual scenarios and the scope of the policies considered. Using a set of common assumptions we find that the burden of fiscal consolidation brought about through changes in components of household disposable income is shared differently across the income distributions in the six countries. At one extreme, in Greece the better off lose a higher proportion of their incomes than the poor and at the other in Portugal the poor lose a higher proportion than the rich. Bringing increases in employer social contributions and indirect taxes into the picture can alter conclusions about the overall distributional effect.

Tim Callan, Chrysa Leventi, Horacio Levy, Manos Matsaganis, Alari Paulus & Holly Sutherland

Presented by:

Holly Sutherland, Alari Paulus & Horacio Levy (ISER)

Date & time:

9 Nov 2011 13:00 pm - 11 Sep 2011 13:00 pm

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