Accounting for Differences in Income Inequality across Countries: Ireland and the United Kingdom.Authors: SOLOGON Denisa, VAN KERM Philippe, LI Jinjing, O'DONOGHUE Cathal.
Abstract: This paper proposes a framework for studying international differences in the distribution of household income. Integrating micro-econometric and micro-simulation approaches in a decomposition analysis it quantifies the role of tax-benefit systems, employment and occupational structures, labour prices and market returns, and demographic composition in accounting for differences in income inequality across countries. Building upon EUROMOD (the European tax-benefit calculator) and its harmonized datasets, the model is portable and can be implemented for any cross-country comparisons within the EU. An application to the UK and Ireland—two countries that have much in common while displaying different levels of inequality—shows that differences in tax-benefit rules between the two countries account for roughly half of the observed difference in disposable household income inequality. Demographic differences play negligible roles. The Irish tax-benefit system is more redistributive than UK’s due to a higher tax progressivity and higher average transfer rates. These are largely attributable to policy parameter differences, but also to differences in pre-tax, pre-transfer income distributions.
Reference: SOLOGON Denisa, VAN KERM Philippe, LI Jinjing, O'DONOGHUE Cathal. Accounting for Differences in Income Inequality across Countries: Ireland and the United Kingdom. LISER, 2018, Working Papers n°2018-01, 48 p.Keywords: