The Distributional Effects of Tax-Benefit Policies Under New Labour: A Shapley Decomposition

22 Pages Posted: 21 Jul 2009

See all articles by Olivier Bargain

Olivier Bargain

IZA Institute of Labor Economics; University College Dublin (UCD)

Abstract

Using counterfactual microsimulations, Shapley decompositions of time change in inequality and poverty indices make it possible to disentangle and quantify the relative effect of tax-benefit policy changes, compared to all other effects including shifts in the distribution of market income. Using this approach also helps to clarify the different issues underlying the distributional evaluation of policy reforms. An application to the UK (1998-2001) confirms previous findings that inequality and depth of poverty would have increased under the first New Labour government, had important reforms like the extensions of income support and tax credits not been implemented. These reforms have also contributed to substantially reduce poverty among families with children and pensioners.

Keywords: tax-benefit policy, inequality, poverty, Shapley decomposition, microsimulation

JEL Classification: H23, H53, I32

Suggested Citation

Bargain, Olivier, The Distributional Effects of Tax-Benefit Policies Under New Labour: A Shapley Decomposition. IZA Discussion Paper No. 4296, Available at SSRN: https://ssrn.com/abstract=1434630

Olivier Bargain (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University College Dublin (UCD) ( email )

Belfield, Dublin 4 4
Ireland
+353 1 716 8357 (Phone)
+353 1 283 0068 (Fax)

HOME PAGE: http://www.ucd.ie/economics/staff/obargain/obargain.htm

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