The Great Recession,Austerity and Inequality: Lessons from Ireland

The advent of the Great Recession and the widespread adoption of fiscal austerity policies have heightened concern about inequality and its effects. We examine how the distribution of income in Ireland—a country which experienced one of the most severe economic contractions—has evolved over the years 2008 to 2013. Standard cross‐sectional analysis of the income distribution shows broad stability in the Gini coefficient and in decile shares, with one main exception: the share of the bottom decile fell sharply, with the largest fall in average incomes being for that group. Longitudinal analysis shows that the falls in the average income for the bottom decile were not due to decreasing income for those remaining in the bottom decile, but to falls in income from those initially located in higher deciles. The extent of redistribution through taxes and transfers increased strongly, as measured by the Reynolds‐Smolensky index, which rose from 0.20 before the onset of the crisis to 0.27 in 2013. Analysis indicates that about three‐quarters of this increased redistribution is due to automatic stabilisers and one‐quarter to discretionary policy changes.     

Measuring school segregation

Using only ordinal axioms, we characterize several multigroup school segregation indices: the Atkinson indices for the class of school districts with a given fixed number of ethnic groups and the Mutual Information index for the class of all districts. Properties of other school segregation indices are also discussed. In an empirical application, we document a weakening of the effect of ethnicity on school assignment from 1987/1988 to 2007/2008. We also show that segregation between districts within cities currently accounts for 33% of total segregation. Segregation between states, driven mainly by the distinct residential patterns of Hispanics, contributes another 32%.     

An experimental study on individual choice, social welfare, and social preferences

We experimentally study subjects’ compliance with dominance relationships of income distributions in a ranking task. The experiment consisted of four different treatments: Lottery, individual choice, social preferences, and social planner. Our results suggest that people's risk attitudes do not adequately reflect their inequality attitudes. Uninvolved social planners exhibit randomization preferences, while self-interested social planners are generally more inequality averse and try to avoid extreme outcomes.     

CAN HOUSEHOLDS AND WELFARE STATES MITIGATE RISING EARNINGS INSTABILITY?

We compare the evolution of earnings instability in Germany and the United Kingdom, two countries which stand for different types of welfare states. Deploying data from the German Socio‐Economic Panel (SOEP) and the British Household Panel Survey (BHPS), we estimate permanent and transitory variances of male income over the period 1984–2009 and 1991–2006, respectively. Studies in this literature generally use individual labor earnings. To uncover the role of welfare state and households in smoothening earnings shocks, we compute different income concepts ranging from gross earnings to net equivalent household income. We find evidence that the overall inequality of earnings in Germany and the United Kingdom has been rising throughout the period due to both higher permanent earnings inequality and higher earnings volatility. However, taking institutions of the welfare state and risk‐sharing households into account, we find that the volatility of net household income has remained fairly stable. Furthermore, redistribution and risk insurance provided by the welfare state is more pronounced in Germany than in the United Kingdom.     

A nice estimation of Gini index and power Pen's parade

Under the assumption that an economic variable y such as income, is a power function of its rank among n individuals, we provide the coefficient of variation and the Gini index as functions of the power degree of the Pen's parade. In fact, knowing the power degree of the Pen's parade function, we obtain the coefficient of variation and a sharp analytical simple way to compute Gini index in terms of the power degree. Reciprocally, knowing, the coefficient of variation of a said variable, we can also provide the power degree of the corresponding Pen's parade, hence deducting its shape. Several examples are given to illustrate our methods. Special attention is given to countries' Gini indices of the World development indicators report 2009 (WDI 2009).     

Shifting Taxes from Labor to Consumption: More Employment and more Inequality?

This paper investigates the effect of shifting taxes from labor income to consumption on labor supply and the distribution of income in Germany. We simulate stepwise increases in the value‐added tax (VAT) rate, which are compensated by revenue‐neutral reductions in income‐related taxes. We differentiate between the personal income tax (PIT) and social security contributions (SSC). Based on a dual data base and a microsimulation model of household labor supply behavior, we find a regressive impact of such a tax shift in the short run. When accounting for labor supply adjustments, the adverse distributional impact persists for PIT reductions, while the overall effects on inequality and progressivity become lower when payroll taxes are reduced. This is partly due to increases in aggregate labor supply, resulting from higher work incentives.