IDEAS home Printed from https://ideas.repec.org/a/bla/revinw/v67y2021i1p196-221.html
   My bibliography  Save this article

Policy, Demography, and Market Income Volatility: What Shaped Income Distribution and Inequality in Australia Between 2002 and 2016?

Author

Listed:
  • Jinjing Li
  • Hai Anh La
  • Denisa M. Sologon

Abstract

Isolating the impact of policy, demographic shifts, and market volatility on changes in income inequality is of great interest to policymakers. However, such estimation can be difficult due to the complex interactions and evolutions in the social and economic environment. Through an extended decomposition framework, this paper estimates the effect of four main components (policy, demography, market income and other factors) on the year‐over‐year changes in income inequality in Australia between 2002 and 2016. This was a period marked by substantial policy, population, and economic shifts due to factors such as the mining boom, the global financial crisis and increasing immigration. The framework also incorporates a flexible non‐parametric market income model which captures demand‐side shock better than a standard parametric model. Our results suggest that market income was the primary driver of income inequality for all segments of the income distribution in Australia over the past 15 years. Policy factors, moreover, have had the largest net impact on reducing inequality overall, especially for lower income earners.

Suggested Citation

  • Jinjing Li & Hai Anh La & Denisa M. Sologon, 2021. "Policy, Demography, and Market Income Volatility: What Shaped Income Distribution and Inequality in Australia Between 2002 and 2016?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(1), pages 196-221, March.
    • Handle: RePEc:bla:revinw:v:67:y:2021:i:1:p:196-221
    DOI: 10.1111/roiw.12467
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/roiw.12467
    Download Restriction: no
    File URL: https://libkey.io/10.1111/roiw.12467?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Nicolas Herault & Francisco Azpitarte, 2015. "Recent Trends in Income Redistribution in Australia: Can Changes in the Tax-Benefit System Account for the Decline in Redistribution?," The Economic Record, The Economic Society of Australia, vol. 91(292), pages 38-53, March.
    2. Olivier Bargain & Tim Callan, 2010. "Analysing the effects of tax-benefit reforms on income distribution: a decomposition approach," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 8(1), pages 1-21, March.
    3. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    4. François Bourguignon & Francisco Ferreira & Phillippe Leite, 2008. "Beyond Oaxaca–Blinder: Accounting for differences in household income distributions," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 6(2), pages 117-148, June.
    5. Angus Deaton & Christina Paxson, 1997. "The effects of economic and population growth on national saving and inequality," Demography, Springer;Population Association of America (PAA), vol. 34(1), pages 97-114, February.
    6. Mathias Dolls & Karina Doorley & Alari Paulus & Hilmar Schneider & Eric Sommer, 2019. "Demographic change and the European income distribution," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 17(3), pages 337-357, September.
    7. Olivier Bargain & Tim Callan & Karina Doorley & Claire Keane, 2017. "Changes in Income Distributions and the Role of Tax‐Benefit Policy During the Great Recession: An International Perspective," Fiscal Studies, Institute for Fiscal Studies, vol. 38, pages 559-585, December.
    8. Olivier Bargain & Kristian Orsini & Andreas Peichl, 2014. "Comparing Labor Supply Elasticities in Europe and the United States: New Results," Journal of Human Resources, University of Wisconsin Press, vol. 49(3), pages 723-838.
    9. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
    10. Shorrocks, A F, 1982. "Inequality Decomposition by Factor Components," Econometrica, Econometric Society, vol. 50(1), pages 193-211, January.
    11. Olivier Bargain & Kristian Orsini & Andreas Peichl, 2012. "Comparing Labor Supply Elasticities in Europe and the US: New Results," SOEPpapers on Multidisciplinary Panel Data Research 525, DIW Berlin, The German Socio-Economic Panel (SOEP).
    12. Roger Wilkins, 2015. "Measuring Income Inequality in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 48(1), pages 93-102, March.
    13. Olivier Bargain & Mathias Dolls & Herwig Immervoll & Dirk Neumann & Andreas Peichl & Nico Pestel & Sebastian Siegloch, 2015. "Tax Policy And Income Inequality In The United States, 1979–2007," Economic Inquiry, Western Economic Association International, vol. 53(2), pages 1061-1085, April.
    14. Holly Sutherland & Ruth Hancock & John Hills & Francesca Zantomio, 2008. "Keeping up or Falling behind? The Impact of Benefit and Tax Uprating on Incomes and Poverty," Fiscal Studies, Institute for Fiscal Studies, vol. 29(4), pages 467-498, December.
    15. Peter Tulip, 2014. "The Effect of the Mining Boom on the Australian Economy," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 17-22, December.
    16. Roger Wilkins, 2014. "Evaluating the Evidence on Income Inequality in Australia in the 2000s," The Economic Record, The Economic Society of Australia, vol. 90(288), pages 63-89, March.
    17. Manos Matsaganis & Chrysa Leventi, 2014. "Distributive Effects of the Crisis and Austerity in Seven EU Countries," ImPRovE Working Papers 14/04, Herman Deleeck Centre for Social Policy, University of Antwerp.
    18. BARGAIN, Olivier & DOLLS, Mathias & IMMERVOLL, Herwig & NEUMANN, Dirk & PEICH, Andreas & PESTEL, Nico, 2015. "Tax policy and income inequality in the United States," LIDAM Reprints CORE 2681, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    19. David Johnson & Roger Wilkins, 2004. "Effects of Changes in Family Composition and Employment Patterns on the Distribution of Income in Australia: 1981–1982 to 1997–1998," The Economic Record, The Economic Society of Australia, vol. 80(249), pages 219-238, June.
    20. SOLOGON Denisa & VAN KERM Philippe & LI Jinjing & O'DONOGHUE Cathal, 2018. "Accounting for Differences in Income Inequality across Countries: Ireland and the United Kingdom," LISER Working Paper Series 2018-01, Luxembourg Institute of Socio-Economic Research (LISER).
    21. Mark Wooden & Simon Freidin & Nicole Watson, 2002. "The Household, Income and Labour Dynamics in Australia (HILDA)Survey: Wave 1," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(3), pages 339-348, September.
    22. Ann Harding & Quoc Ngu Vu & Alicia Payne & Richard Percival, 2009. "Trends in Effective Marginal Tax Rates in Australia from 1996–97 to 2006–07," The Economic Record, The Economic Society of Australia, vol. 85(271), pages 449-461, December.
    23. John Creedy & Nicolas Hérault, 2015. "Decomposing Inequality Changes: Allowing for Leisure in the Evaluation of Tax and Transfer Policy Effects," Fiscal Studies, Institute for Fiscal Studies, vol. 36, pages 157-180, June.
    24. Nicolas Herault & Francisco Azpitarte, 2016. "Understanding Changes in the Distribution and Redistribution of Income: A Unifying Decomposition Framework," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(2), pages 266-282, June.
    25. Martin Biewen, 2014. "A general decomposition formula with interaction effects," Applied Economics Letters, Taylor & Francis Journals, vol. 21(9), pages 636-642, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jinjing Li & Yogi Vidyattama & Hai Anh La & Riyana Miranti & Denisa M. Sologon, 2022. "Estimating the Impact of Covid-19 and Policy Responses on Australian Income Distribution Using Incomplete Data," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 162(1), pages 1-31, July.
    2. Karina Doorley & Jan Gromadzki & Piotr Lewandowski & Dora Tuda & Philippe Van Kerm, 2023. "Automation and income inequality in Europe," IBS Working Papers 06/2023, Instytut Badan Strukturalnych.
    3. Nerijus Černiauskas & Denisa M. Sologon & Cathal O’Donoghue & Linas Tarasonis, 2022. "Income Inequality and Redistribution in Lithuania: The Role of Policy, Labor Market, Income, and Demographics," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 68(S1), pages 131-166, April.
    4. Roger Wilkins, 2021. "Economic Wellbeing," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 54(4), pages 469-481, December.
    5. Dooley, Karina & Gromadzki, Jan & Lewandowski, Piotr & Tuda, Dora & Van Kerm, Philippe, 2023. "Automation and Income Inequality in Europe," SocArXiv kdz5e_v1, Center for Open Science.
    6. Yanotti, Maria B. & Banks, Marcus & de Silva, Ashton & Anantharama, Nandini & Peter Whiteford, & Bowman, Dina & Csereklyei, Zsuzsanna, 2021. "The utility of new data in understanding housing insecurity," SocArXiv qb4d2, Center for Open Science.
    7. O'Donoghue, Cathal & Sologon, Denisa Maria, 2023. "The Transformation of Public Policy Analysis in Times of Crisis – A Microsimulation-Nowcasting Method Using Big Data," IZA Discussion Papers 15937, Institute of Labor Economics (IZA).
    8. Silvia Avram & Mike Brewer & Paul Fisher & Laura Fumagalli, 2022. "Household Earnings and Income Volatility in the UK, 2009–2017," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(2), pages 345-369, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. LI Jinjing & LA Hai anh & SOLOGON Denisa, 2019. "Policy, demography and market income volatility: What was shaping income distribution in Australia between 2002 and 2016?," LISER Working Paper Series 2019-02, Luxembourg Institute of Socio-Economic Research (LISER).
    2. Alari Paulus & Iva Valentinova Tasseva, 2020. "Europe Through the Crisis: Discretionary Policy Changes and Automatic Stabilizers," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(4), pages 864-888, August.
    3. Nicolas Hérault & Guyonne Kalb, 2022. "Understanding the rising trend in female labour force participation," Fiscal Studies, John Wiley & Sons, vol. 43(4), pages 341-363, December.
    4. Alari Paulus & Holly Sutherland & Iva Tasseva, 2020. "Indexing Out of Poverty? Fiscal Drag and Benefit Erosion in Cross‐National Perspective," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(2), pages 311-333, June.
    5. Mathias Dolls & Karina Doorley & Alari Paulus & Hilmar Schneider & Eric Sommer, 2019. "Demographic change and the European income distribution," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 17(3), pages 337-357, September.
    6. Nerijus Cerniauskas & Denisa M. Sologon & Cathal O’Donoghue & Linas Tarasonis, 2020. "Changes in income inequality in Lithuania: the role of policy, labour market structure, returns and demographics," Bank of Lithuania Working Paper Series 71, Bank of Lithuania.
    7. SOLOGON Denisa & ALMEIDA Vanda & VAN KERM Philippe, 2019. "Accounting for the distributional effects of the 2007-2008 crisis and the Economic Adjustment Program in Portugal," LISER Working Paper Series 2019-05, Luxembourg Institute of Socio-Economic Research (LISER).
    8. Nerijus Černiauskas & Denisa M. Sologon & Cathal O’Donoghue & Linas Tarasonis, 2022. "Income Inequality and Redistribution in Lithuania: The Role of Policy, Labor Market, Income, and Demographics," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 68(S1), pages 131-166, April.
    9. Nolan, Matt, 2018. "Did tax-transfer policy change New Zealand disposable income inequality between 1988 and 2013?," Working Paper Series 20842, Victoria University of Wellington, Chair in Public Finance.
    10. Nolan, Matt, 2018. "Did tax-transfer policy change New Zealand disposable income inequality between 1988 and 2013?," Working Paper Series 7661, Victoria University of Wellington, Chair in Public Finance.
    11. Robin Jessen, 2019. "Why has Income Inequality in Germany Increased From 2002 to 2011? A Behavioral Microsimulation Decomposition," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(3), pages 540-560, September.
    12. Hanewald, Katja & Jia, Ruo & Liu, Zining, 2021. "Why is inequality higher among the old? Evidence from China," China Economic Review, Elsevier, vol. 66(C).
    13. Denisa M. Sologon & Philippe Kerm & Jinjing Li & Cathal O’Donoghue, 2021. "Accounting for differences in income inequality across countries: tax-benefit policy, labour market structure, returns and demographics," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(1), pages 13-43, March.
    14. Thor O. Thoresen & Zhiyang Jia & Peter J. Lambert, 2016. "Is there More Redistribution Now? A Review of Methods for Evaluating Tax Redistributional Effects," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 72(3), pages 302-333, September.
    15. Massimo Baldini, 2021. "Redistribution and progressivity of the Italian personal income tax, 40 years later," Fiscal Studies, John Wiley & Sons, vol. 42(2), pages 345-366, June.
    16. Frank Cowell & Carlo Fiorio, 2011. "Inequality decompositions—a reconciliation," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 9(4), pages 509-528, December.
    17. SOLOGON Denisa & VAN KERM Philippe & LI Jinjing & O'DONOGHUE Cathal, 2018. "Accounting for Differences in Income Inequality across Countries: Ireland and the United Kingdom," LISER Working Paper Series 2018-01, Luxembourg Institute of Socio-Economic Research (LISER).
    18. Makarski, Krzysztof & Tyrowicz, Joanna, 2023. "Preference for redistribution during structural change with labor mobility frictions," European Journal of Political Economy, Elsevier, vol. 77(C).
    19. Matteo Picchio & Giacomo Valletta, 2018. "A welfare evaluation of the 1986 tax reform for married couples in the United States," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(3), pages 757-807, June.
    20. Caterina Astarita & Salvador Barrios & Francesca D'Auria & Anamaria Maftei & Philipp Mohl & Matteo Salto & Marie-Luise Schmitz & Alberto Tumino & Edouard Turkisch, 2018. "Impact of fiscal policy on income distribution," Report on Public Finances in EMU, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, pages 71-131, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:revinw:v:67:y:2021:i:1:p:196-221. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/iariwea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.