Posted by: Dirk | August 2, 2013

The distributional impact of austerity

Annex F of the Irish Budget contains this graph:

Contents - Annex F - Progressivity.pdfAs you can see, the distributional impact in Ireland is quite different from that in other countries affected by austerity. Portugal (PT) looks like a very bad case, with the poorer parts of the population lose a higher share of their disposable income than the relatively rich. Spain (ES) and Estonia (EE) look quite a like, with the burden falling on all groups. Of course, those that are poor will be harmed more than those that are rich by a 3% cut in disposable income. Then there is Greece (EL) and the UK, where the rich experienced higher cuts in their disposable income due to austerity measures. How exactly where those cuts calculated?

“A comparison of austerity measures to 2011 in six EU countries by researchers on behalf of the European Commission found that reductions in disposable income due to tax and contribution increases in Ireland were larger in the upper part of the income distribution.”
This, of course, is not the full picture. If you accept that austerity has caused unemployment to soar you will find that many people have lost their jobs. The distributional impact of austerity should include those effects as well and not focus only on the direct first round effects cuts in government spending and increases in taxation. If only economics were easy like this…
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