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Research Paper Social Situation Observatory Research Notes 2/2011

The distributional effects of austerity measures: a comparison of six EU countries

Authors

Publication date

Nov 2011

Abstract

We compare the distributional effects of austerity measures
that have been introduced in 6 EU countries in the period of large government
budget deficits following the 2007-8 financial crisis and subsequent 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
distribution 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 indirect taxes into the picture can alter conclusions about the overall
distributional effect, increasing the cost most for those with lower income and
making the overall incidence of the measures more regressive.

Subjects

Microsimulation and International Economic Relations

Links

http://ec.europa.eu/social/keyDocuments.jsp?policyArea=&type=0&country=0&year=2011&advSearchKey=euromod&mode=advancedSubmit&langId=en


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