Tuesday, 30 July 2013

Who got hit worst in Ireland?

The authors of a new paper, "Crisis, Response and Distributional Impact: The Case of Ireland", are right when they say that "There is strong interest in many countries in assessing the distributional impact of austerity measures". Many people suspect that the impact may be regressive: in Greece, for example, efforts to raise tax have fallen on the ordinary guy who is visible to the PAYE system, and not on the wealthy guy, who isn't. The Irish example in particular is interesting, as Ireland has been the Eurozone economy most prepared to go down the austerity route.

Here's the income distribution pre- and post-GFC. Overall real per capita incomes dropped by 7.8% over the 2008-12 period: within that, the bottom decile fared worst (-18.4%) and the top decile was next worst off (-11.4%).

What caused this pattern of those at opposite ends of the income distribution bearing most of the brunt of the fall in incomes?

At the top end, the strongly progressive nature of the various austerity policies, as shown below.

The graph shows the percentage impact of all the various measures.on disposable income by decile. Austerity policies were heavily targetted towards the better off. There is a little bump in the progressivity, where deciles 2 and 3 got treated a bit less roughly than decile 1, the explanation being that old age pensioners are clustered in deciles 2 and 3, and the old age pension was one of the few social transfers that was not cut during this period.

At the bottom end, as the authors summarise it, "Tax, welfare and public sector pay changes over the 2008 to 2012 period gave rise to lower than average losses for the bottom decile", as we can see in the graph above. "Thus, the larger than average losses observed overall are not due to these policy changes; instead, the main driving factors are the direct effects of the recession itself".

Irrespective of whether you subscribe to austerity as the right plan for a country in Ireland's circumstances, at least there is the cold comfort that, when it came to the forcible whip-around to contribute to the state's coffers, Ireland's clampdown was heavily focussed on the richer half of the income distribution.

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