Back to the future: Decomposition analysis of distributive policies using behavioural simulations

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: UCD Centre for Economic Research Working Paper Series ; No. WP10/32

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies ; National Government Expenditures and Welfare Programs ; Measurement and Analysis of Poverty
• Subject: Tax-benefit policy ; Inequality ; Poverty ; Shapley value decomposition ; Labour supply ; Behavioural microsimulation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bargain, Olivier
• Event: Veröffentlichung
• (who): University College Dublin, UCD School of Economics
• (where): Dublin
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/71317
• Last update: 10.03.2025, 11:42 AM CET