Income Inequality and Public Policy

This paper briefly summarises the evidence that Ireland has a relatively high level of income inequality, which has been rather stable over time and reflects institutional legacies and choices made in the past. A comparative and over time perspective suggests that modest reductions in income inequality are achievable within the framework of Ireland’s current socioeconomic model, but bringing it below the (EU or OECD) average may well be beyond the capacity of that model. The current financial, fiscal and economic crises require very substantial increases in tax revenue and reductions in state spending. The imperative to close the fiscal deficit provides a window of opportunity to restructure the tax system in a fashion that is not only more economically efficient but also more equitable. Another core aim should be to minimise the number experiencing long-term unemployment and thus the long-term impact of the recession on labour market careers. Once the most immediate needs of the situation are met, this context may provide an opportunity to debate fundamental questions about the role of the state, the extent and nature of social provision and its financing, and the broader relationship between economic performance, the Welfare State, and the underlying goals of Ireland’s socio-economic policy.