Redistribution in the age of austerity: evidence from Europe 2006–2013

ABSTRACT

We examine the relationship between changes in a country’s public sector fiscal position on inequality at the top and bottom of the income distribution during the age of austerity from 2006 to 2013. We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on Statistics of Income and Living Conditions (EU-SILC) and IMF data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggests a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies and likely produces increased incentives for rent-seeking while reducing incentives for workers to increase productivity.

KEYWORDS:

• Inequality
• austerity
• Europe
• fiscal policy
• Lorenz curve

JEL CLASSIFICATION:

• D31
• D63
• E62
• E65
• H6

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Austria, Belgium, France, Germany, Greece, Italy, Ireland, Luxembourg, Netherlands, Portugal, Spain and United Kingdom

² Note that our formulation of G₀ differs slightly from Jantzen and Volpert (2012) so that it takes a value between 0 and 1.

³ We already know that this result has not been achieved in the ‘neoliberal era’ post-1980.

Additional information

Funding

This work was funded by the Institute for New Economic Thinking under grant number INO1300030, Debt and Demography in the European Periphery