Association for Public Policy Analysis & Management

in the distribution of household disposable income, focusing on the role of tax-benefit systems,

employment structures (in-work, employee/self-employed, occupation/industry/sector),

returns (labour market, private pensions, other) and demographic structures. In order

to incorporate the complexity of welfare systems and the large population heterogeneity,

we propose a unified micro-simulation micro-econometric approach using comparable

data across countries with similar level of development. Our framework extends the

(Bourguignon et al., 2008) methodology by developing a household income distribution,

which incorporates a flexible parametric approach of modeling wage differentials across

the entire distribution and the complexity of tax-benefit rules through micro-simulation

(EUROMOD). The result is an integrated framework across countries for generating and

simulating the distribution of household disposable income under alternative scenarios,

thereby enabling the study of the various drivers of the cross-national distributional differences

in household disposable income.

The paper shows the results for two European neighboring English-speaking countries –the

UK and Ireland– that share many similarities, while displaying at the same time sufficient

differences to merit understanding more clearly of the factors that have resulted in different

reinforce the policy effect mainly through the differences in demographics and interaction

effects. The policy, demographics and interaction effects counterbalance the disequalizing

impact of differences in market composition and returns, driven mainly by the distribution

of non-labour income sources.

The Irish tax-benefit system is more redistributive than the UK system due to a higher

tax progressivity and more generous average transfer rates. These differences are largely

attributable to policy differences, but also to differences in market income distribution.

Market income distributional differences reinforce the net redistributive policy effect via

the market composition and demographic differences. The positive effect of the differences

in market composition (mainly via the assignment of non-labour income sources and the

occupational structure) and in demographics stem mainly from the positive effect on both

average transfer rates and tax progressivity. The difference in returns (especially labour

market returns) erode partially the net redistributive policy effect by eroding both tax

progressivity and average transfer rates.