New research from the EUROMOD team looking at the effect of recent austerity measures in six European countries is published today.
The distributional effects of austerity measures: a comparison of six EU countries compares the measures that have been introduced in the period of large government budget deficits following the 2007-8 financial crisis and subsequent economic downturn (up to mid-2011). The researchers explore the effects of policy changes considered as “austerity measures” in Estonia, Ireland, Greece, Spain, Portugal and the UK, using the EU microsimulation model EUROMOD, a tax-benefit microsimulation model for the European Union (EU) that enables researchers and policy analysts to calculate the effects of taxes and benefits on household incomes and work incentives for the population of each country and for the EU as a whole.
The research shows that the effects are as follows:
- Progressive in Greece (partly regressive tax cuts, progressive pension and public pay cuts)
- Progressive in UK (top decile only, due to top income tax increases)
- U-shaped in Ireland (largest at top and bottom; progressive tax increases + public pay cuts and regressive benefit cuts)
- Flat/progressive in Spain (regressive benefit cuts, mildly progressive tax increases and public pay cuts)
- Flat/regressive in Estonia (regressive contribution increases, mildly progressive public pay cuts)
- Regressive in Portugal (benefit cuts at low incomes)
Other key findings are:
- Older people are protected in all countries except Greece and especially in Ireland and Estonia
- Children are relatively well protected in Greece and in UK at low incomes and particularly badly affected in Estonia and at low incomes in Portugal
- The risk of poverty (fixed threshold) rises in Ireland and Portugal; and especially for children in Estonia, Ireland and Portugal and older people in Greece and Portugal
Commenting on the findings, Holly Sutherland, who leads the EUROMOD team, said:
“It is striking how national priorities differ when choosing who should contribute most to austerity. In Portugal the poor pay a higher proportion of their income than the rich. In five of the six countries older people have been largely protected at the expense of children. In Greece it is the opposite.”
Talking about the unique research opportunities provided by EUROMOD, she added:
“EUROMOD offers the opportunity to explore the implications of austerity for households across the EU. This is particularly important for countries without such modelling capacity at the national level. Consistent comparisons highlight differences in national priorities and might also show the way for better distributional outcomes in the future.”
Holly will present some of the research findings today at a conference examining inequalities in Europe and the future of the welfare state. The event for policy makers, academics and European Commission staff has been organised to take stock of how inequalities develop and to explore ways of mitigating them. As well as highlighting some of the key findings during her session entitled Who is bearing the cost of austerity? she will be sharing the following key points from the work she and colleagues have been undertaking:
- Government choices over the nature of austerity policies have an effect that may mitigate or exacerbate the overall distributional effect of the crisis on household incomes. In some countries the changes made to taxes, cash benefits and public sector pay have had a progressive effect, in others a regressive one. In some countries households with children have seen their incomes fall further than others; in other countries it is older people who have lost more.
- The story is not yet over. Not only are the effects of public service cuts still to become clear but also new austerity measures affecting cash incomes are in the pipeline in a number of the countries examined here as well as in others across the EU.
The conference is being staged as part of the EU’s Europe 2020 strategy on inclusive growth and on sharing the benefits of growth widely. Organisers hope it will serve as inspiration for European policy making and its results will be summarised in a flash report to be released after the conference.
The research was carried out for the Social Situation Observatory, which is funded by the Directorate General for Employment, Social Affairs and Inclusion, of the European Commission.
The research team
- Tim Callan, The Economic and Social Research Institute, Dublin
- Chrysa Leventi, Athens University of Economics and Business
- Horacio Levy, ISER
- Manos Matsaganis, Athens University of Economics and
Business - Alari Paulus, ISER
- Holly Sutherland, ISER