On 23 January, ESRI researcher Barra Roantree delivered this presentation at the Barrington lecture whilst receving the Statistical Society's Barrington prize. A press release for the study can be found here: https://www.esri.ie/news/irish-tax-system-does-most-in-europe-to-reduce-inequality

1. @ESRIDublin #ESRIevents #ESRIpublications www.esri.ie
Barrington Lecture 2020
Understanding income inequality in
Ireland
DATE
23rd January 2020
AUTHOR
Barra Roantree

2. 2
Outline
How is household income distributed in Ireland today,
how does this compare to the past & our EU neighbours
- Build on O’Connell (1982), O’Neill & Sweetman (1999), Callan &
Nolan (1993), Madden (1996), Nolan & Maitre (2000), Nolan et
al. (2000), Nolan (2009), Calvert et al. (2013), Callan et al. (2016)
- Draw on household survey data collected by the ESRI, CSO & EU
statistical agencies: NB under-coverage of very highest incomes
What implications does this have for policy?

3. 3
Most recent SILC data show half of households have more than €40k disposable income pa
How is income distributed in Ireland today?

4. 4
… while top 10% have more than €85k and bottom 10% less than €14k
How is income distributed in Ireland today?

5. 5
Adjusting for household size reduces degree of inequality substantially
How is income distributed in Ireland today?

6. 6
… but total share of top 10% is still more than that of bottom 40% combined
How is income distributed in Ireland today?
3.5 5.1 6.1 6.9 7.9 9.1 10.4 12.2 14.8 24.2
6.1

7. 7
How has this changed over time?
Shares quite similar to 1987 but real disposable income much higher across the board

8. 8
How has this changed over time?
… reflecting strong, balanced growth right across the distribution since 1987

9. 9
How has this changed over time?
… the product of 3 distinct phases of growth (1987-1997;

10. 10
How has this changed over time?
… the product of 3 distinct phases of growth (1987-1997; 1997-2007;

11. 11
How has this changed over time?
… the product of 3 distinct phases of growth (1987-1997; 1997-2007; 2007-2017)

12. 12
How has this changed over time?
… which on most measures has left income inequality lower in 2017 than in 1987
0.10
0.20
0.30
0.40
Gini GE(-1) GE(0) GE(1) GE(2)
1987 2017
higherlower
With exception of top-
sensitive GE(2) measure

13. 0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
Gini GE(-1) GE(0) GE(1) GE(2)
1987 2017
13
How has this changed over time?
Market income inequality, however, has risen except at the very bottom
= 27.5
= 11.8
higherlower

14. 14
How has this changed over time?
… which is in part explained by pattern of real weekly earnings growth

15. 15
How has this changed over time?
… driven by growth in hourly wages rather than hours of work

16. 16
How has this changed over time?
And although there has been a huge rise in the share of women in paid work
0
10
20
30
40
50
60
70
80
1980 1985 1990 1995 2000 2005 2010 2015 2020
Employmentrateforwomenaged25-64(%)
Source: Eurostat LFS database, lfsa_ergaed

17. 17
How has this changed over time?
… this has been concentrated in households with a higher-earning man

18. 18
How does this compare to our neighbours?
In 2017, market income inequality highest in EU-28 as measured by the Gini coefficient

19. 19
How does this compare to our neighbours?
… although around mid-table if look just at those with positive amounts

20. 20
How does this compare to our neighbours?
... as where we really stand out is % of working-age adults with no market income

21. 21
How does this compare to our neighbours?
Comparatively low rates of employment among single parent households in particular

22. 22
How does this compare to our neighbours?
… who make up a larger share of total households than in other countries

23. 23
How does this compare to our neighbours?
... while 19% of working-age adults living alone say permanently disabled/unfit for work

24. 24
How does this compare to our neighbours?
Adding pensions & benefits does much to reduce inequality, though still near top of table

25. 25
How does this compare to our neighbours?
… but drop mid-table once deduct taxes to get (equivalised) disposable income

26. 26
How does this compare to our neighbours?
… with the Irish tax system doing the most of any EU country to reduce inequality
-20%
-15%
-10%
-5%
0%
%
Difference between disposable and gross income Gini coefficients

27. 27
How does this compare to our neighbours?
Certain features of the tax system particularly progressive
- Early starting point to the higher rate of income tax (SRB)
- 5-rate Universal Social Charge levied on broad income base
Simulate effect of eliminating these using EUROMOD
- Increasing SRB to €50k/€59k (single/married) would raise Gini to
0.321 (into top 10 of EU-28 & to near British levels)
- … while abolishing USC would raise Gini to 0.325 (same effect)
- Both at a substantial cost to the exchequer: Revenue/Department
of Finance estimate at c.€2.5 and €3.5bn per year respectively

28. 28
Distributional effect of raising SRB & abolishing USC
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Lowest 2 3 4 5 6 7 8 9 Highest All
Gainasa%ofdisposableincome
Decile of equivalised disposable income
SRB increase Abolition USC

29. 29
Implications for policy
Progressivity of tax system may limit its scope to reduce
household disposable income inequality much further
- Reducing tax credits or the SRB effective, but politically difficult
- … as is raising rates on higher earners, which at some point
(unknown for Ireland) could also lead to lower revenues
But other options exist to address inequality at the top
- Many tax reliefs without strong policy rationale benefit mostly
higher-income households (e.g. Help-to-Buy, Entrepreneurs
Relief, tax-free lump sum on retirement, CAT exemptions, etc.)
- Greater competition in protected professions could reduce
inequality at the same time as lowering prices for consumers:
e.g. NCC (2019) highlighted slow pace of reforms in legal sector

30. 30
Implications for policy
Similarly, high % of households with no market income
blunts effectiveness of min wage in reducing inequality
- Logue & Callan (2016) found most of gains from an increase go
to households in top half of the income distribution
- Redmond et al. (2019) show 12% of minimum wage workers
live in households with incomes of more than €100k per year
Suggests those wanting to reduce HH income inequality
may want to focus on other policy options, for example:
- Increasing generosity of Working Families Payment (aka FIS) &
expanding eligibility to low-income working adults without kids
- Linking annual benefit payment increases to earnings growth:
not doing so from 2016-20 acted to raise Gini by almost 2%

31. 31
Implications for policy
Also a need for closer monitoring of work incentives
- Research suggests these are generally quite strong in Ireland
- ... but Making Work Pay report highlighted level of Disability
Allowance earnings disregard & loss of secondary benefits
- … and proliferation of new schemes creates potential for means-
tests to interact e.g: HAP, NCS and mooted social-care support
… and – of course – to collect better data
- Know little about intergenerational inequality & mobility
- … or the joint distribution of income, consumption & wealth
- … or the composition & extent of incomes at the very top

32. @ESRIDublin #ESRIevents #ESRIpublications www.esri.ie
Barrington Lecture 2020
Understanding income inequality in
Ireland
DATE
23rd January 2020
AUTHOR
Barra Roantree