The Changing Education Distribution and Income Inequality in Great Britain

Over the past years, education attainment has increased at an unprecedented rate in Great Britain. We analyse how the education expansion affected inequality in household net incomes since the early 2000s. We show that, all else being equal, education composition changes led to higher living standards mostly through higher wages. As education expansion led to larger income gains in the middle and top than at the bottom of the distribution, income inequality increased. Despite the increasing share of high-educated workers, we find limited evidence of a ‘compression’ effect on inequality, as the higher education wage premium remained broadly unchanged

Evaluating the performance of means-tested benefits in Bulgaria

Using household survey data and microsimulation techniques, we analyse the performance of three means-tested benefits in Bulgaria. We find that the transfers reach a small proportion of households with incomes below a relative poverty line, they have high non take-up rates, and large proportions of the recipients are neither poor nor entitled to receive the benefits. Unsurprisingly, although an important income source for poor households, the benefits have a very small impact on reducing the poverty rates. We show that our results are robust to potential underreporting of benefit receipt in the household survey. Finally, we analyse the effect of five reform scenarios, one of which fiscally neutral, on poverty and find that there is a large scope for policy improvement

Did the UK policy response to Covid-19 protect household incomes?

We analyse the UK policy response to Covid-19 and its impact on household incomes in the UK in April and May 2020, using microsimulation methods. We estimate that households lost a substantial share of their net income of 6.9% on average. But policies protected household incomes to a substantial degree: compared to the drop in net income, GDP per capita fell by 18.9% between the first and second quarter of 2020. Earnings subsidies (the Coronavirus Job Retention Scheme) protected household finances and provided the main insurance mechanism during the crisis. Besides subsidies, Covid-related increases to state benefits, as well as the automatic stabilisers in the tax and benefit system, played an important role in mitigating the income losses. However, analysing the impact of a near-decade of austerity on the UK safety net, we find that, compared to 2011 policies, the 2020 pre-Covid tax-benefit policies would have been less effective in insuring incomes against the shocks. We also assess the potential distributional impact of introducing a Universal Basic Income (UBI) instead of the Covid emergency measures and find that a UBI would have supported the incomes of different vulnerable groups but would have provided less protection to those hit hardest by the labour market shocks

Europe Through the Crisis: Discretionary Policy Changes and Automatic Stabilizers

Tax‐benefit policies affect changes in household incomes through two main channels: discretionary policy changes and automatic stabilizers. We study their role in the EU countries in 2007–14 using an extended decomposition approach. Our results show that the two policy actions often reduced rather than increased inequality of net incomes, and so helped offset the inequality‐increasing impact of growing disparities in gross market incomes. While inequality reductions were achieved mainly through benefits using both routes, policy changes to and the automatic stabilization response of taxes and contributions raised inequality in some countries and lowered it in others

Essays on household incomes and public policies

This thesis studies some of the key factors that influence the distribution of household net incomes in the EU countries. Part of the work analyses the impact of education changes on income inequality. The remaining part of the thesis analyses from different angles the role of tax-benefit policies for household incomes. The thesis consists of four self-contained papers. In the methodology of all papers, I combine a tax-benefit model EUROMOD with household micro-data. Chapter 1 is concerned with the impact on income inequality of the substantial increase in the number of university graduates in Great Britain. Chapter 2 studies the impact on the income distribution of automatic stabilisers and discretionary changes to tax-benefit policies in the EU-28. Chapter 3 evaluates ex-post the performance of the main means-tested benefits in Bulgaria in terms of targeting and poverty reduction. Finally, Chapter 4 studies how income poverty is affected by hypothetical changes to the scale of both tax and benefit policies and investigates which are the most cost-effective policies in reducing poverty or limiting its increase in seven diverse EU countries

A lost decade?: decomposing the effect of 2001-11 tax-benefit policy changes on the income distribution in EU countries

This paper examines the extent to which tax and benefit policy changes introduced in the period 2001-11 had a poverty- or inequality-reducing effect. We assess whether the period was indeed a “missed opportunity” for policy changes to make a difference to poverty reduction since the Lisbon Treaty, given the general lack of improvement shown by poverty indicators. Our analysis uses the tax-benefit model EUROMOD and covers seven diverse EU countries: Belgium, Bulgaria, Estonia, Greece, Hungary, Italy and the United Kingdom. We apply the Bargain and Callan (2010) decomposition approach, extending it by separating the effect due to structural policy changes and the indexation effect. We find that the latter was typically more effective in alleviating poverty and inequality than changes to the structure of policies. In fact, most of the structural changes that governments introduced, especially in the 2007-11 crisis-onset period, had poverty and inequality-increasing effects. We find considerable variation between countries in how different policy instruments have been adjusted, and in the effects of these adjustments by income, by age and by household composition, showing the importance of understanding them together, rather than discussing just some in isolation

Ecuador’s social protection system failed during the pandemic. It needs a rethink

Household incomes in Ecuador were badly hit by the pandemic, despite the government’s emergency grant to families. H Xavier Jara Tamayo (University of Essex), Lourdes Montesdeoca (Facultad Latinoamericana de Ciencias Sociales, Ecuador) and Iva Tasseva (LSE) say the country needs to rethink its social protection plans and consider raising more money through corporate and wealth taxes

In parts of Europe, income inequality barely changed at the onset of the pandemic

Furlough and social security benefits meant disposable household incomes were protected to a substantial degree at the start of the pandemic. Income inequality was largely unchanged, write Olga Cantó (Universidad de Alcalá), Francesco Figari (University of Insubria), Carlo Fiorio (University of Milan) and Iva Tasseva (LSE)

Indexing out of poverty? Fiscal drag and benefit erosion in cross-national perspective

We assess how tax-benefit policy developments in 2001-2011 affected the household income distribution in seven EU countries. We use the standard microsimulation-based decomposition method, separating further the effect of structural policy changes and the uprating of monetary parameters, which allows us to measure the extent of fiscal drag and benefit erosion in practice. The results show that despite different fiscal effects, policies overall mostly reduced poverty and inequality and both types of policy developments had sizeable effects on the income distribution. We also find that the uprating of monetary parameters not only had a positive effect on household incomes, meaning fiscal drag and benefit erosion were avoided, but generally also contributed more to poverty and inequality reduction than structural policy reforms