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Back to the future - decomposition analysis of distributive policies using behavioural simulations

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  • Olivier Bargain

Abstract

For policy makers and analysts, it is important to isolate the redistributive impact of tax-benefit policy changes from changes in the environment in which policies operate. When actual reforms are motivated by work incentives, it is also crucial to evaluate behavioural responses and the distributional consequences thereof. For that purpose, we embed counterfactual simulations in a formal framework based on the Shapley value decomposition and quantify the relative roles of (i) tax-benefit policy changes (direct policy effect), (ii) labour supply responses to the policy reforms (in- direct effect) and (iii) all other factors affecting income distribution over time. An application to the UK shows that the redistributive reforms of the 1998-2001 period have offset the increase in inequality that would have occurred otherwise. They also contribute to a strong decline in child poverty and poverty amongst single parent households. In the latter group, a third of the headcount poverty reduction (and half of the reduction in the depth of poverty) is on account of the very large incentive effect of policy changes.

Suggested Citation

  • Olivier Bargain, 2010. "Back to the future - decomposition analysis of distributive policies using behavioural simulations," Working Papers 201032, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:201032
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    File URL: http://hdl.handle.net/10197/2666
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    1. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-442, June.
    2. VAN KERM Philippe, 2003. "What Lies Behind Income Mobility? Reranking and Distributional Change in Belgium, Western Germany and the USA," IRISS Working Paper Series 2003-03, IRISS at CEPS/INSTEAD.
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    Cited by:

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    2. Gintare Mazeikaite & Cathal O’Donoghue & Denisa M. Sologon, 2019. "The Great Recession, financial strain and self-assessed health in Ireland," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 20(4), pages 579-596, June.
    3. John Creedy & Nicolas Hérault†, 2011. "Decomposing Inequality and Social Welfare Changes : The Use of Alternative Welfare Metrics," Department of Economics - Working Papers Series 1121, The University of Melbourne.
    4. John Creedy & Nicolas Hérault†, 2011. "Decomposing Inequality and Social Welfare Changes : The Use of Alternative Welfare Metrics," Department of Economics - Working Papers Series 1121, The University of Melbourne.
    5. Nolan, Matt, 2018. "New Zealand Wage Equations: 1988-2013," Working Paper Series 20840, Victoria University of Wellington, Chair in Public Finance.
    6. John Creedy, 2013. "Alternative Distributions for Inequality and Poverty Comparisons," Treasury Working Paper Series 13/11, New Zealand Treasury.
    7. Leszek Morawski & Aneta Semeniuk, 2013. "Zakres ubóstwa a reformy podatkowo-świadczeniowe w latach 2006-2010," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 4, pages 21-40.
    8. Alexis Eidelman & Fabrice Langumier & Augustin Vicard, 2013. "Prélèvements et transferts aux ménages : des canaux redistributifs différents en 1990 et 2010," Économie et Statistique, Programme National Persée, vol. 459(1), pages 5-26.
    9. John Creedy, 2013. "Alternative Distributions for Inequality and Poverty Comparisons," Treasury Working Paper Series 13/11, New Zealand Treasury.
    10. Nolan, Matt, 2018. "New Zealand Wage Equations: 1988-2013," Working Paper Series 7659, Victoria University of Wellington, Chair in Public Finance.

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    More about this item

    Keywords

    Tax-benefi?t policy; Inequality; Poverty; Shapley value decomposition; Labour supply; Behavioural microsimulation; Fiscal policy; Income distribution; Decomposition (Mathematics); Labor supply;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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