WP 3 – Effects of the crisis and austerity

The onset of the economic crisis near the end of the Lisbon decade made the fight against poverty in Europe more difficult. Even though the redistributional capacity of European welfare states seemed to have declined already at the onset of the recent economic crisis, the austerity measures to counter it are widely expected to strain further the capacity to redistribute.

The proposed research aims to identify the impact of the economic crisis and the austerity measures on income distribution and poverty in a selection of EU countries, including those badly affected, though to varying degrees, such as Greece, Spain, the UK, Ireland, Latvia, Lithuania and other countries. The results will complement the investigation on poverty in the pre-crisis period carried out in WP 1.

Usually survey data collected during the crisis would provide evidence of the evolution of the income distribution, including the incomes of the unemployed (Aaberge et al., 2000), and analysis of panel data would show us how incomes evolve for the newly unemployed (Jenkins, 2000) and for vulnerable groups such as migrants, youth, women and the low skilled. However, these data are not yet available. Therefore our analysis uses the Europe-wide tax-benefit microsimulation model EUROMOD. Simulation of the distributional impact of the austerity measures in Europe using EUROMOD allows the estimation of the magnitude and direction of changes in the distribution of household incomes before actual data become available.

The proposed research will provide a timely indication of changes in the distribution of incomes in Europe, as a result of both the economic crisis and the policy measures taken in response to it, and will contribute to the work carried out in WP 15. The results will help policy makers to monitor the effects of the crisis as it unfolds. Moreover, our estimates will provide the press and public opinion with valuable material, contributing to a more rigorous analysis and a more informed debate at the political level.