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Protecting social welfare during the crash lessened income inequality - ESRI

A new report finds that protecting those on social welfare impacted on income inequality.

Image: Euro via Shutterstock

THE COMMITMENT OF successive governments to protecting those on social welfare led to income inequality falling during the economic crash.

That is the finding of new research published by the Economic and Social Research Institute (ESRI).

The research note by ESRI economist John FitzGerald, outlines how policies adopted by successive governments have contributed to a fall in the inequality in the distribution of income since 2007.

The report says that a major factor in this was that “the welfare system was relatively unchanged in the face of the massive increase in numbers depending on it”.

This, however, pushed the burden onto middle-income workers, who had to bear the brunt of tax increases.

The report says:

“[The] need for increased taxes and for cuts elsewhere in the economy was greatly increased by the decision of successive governments to protect those on low incomes who were dependent on the welfare system.

This policy choice was different from that adopted elsewhere in the EU 15, where income inequality increased significantly as a result of the crisis.

Fitzgerald goes on to say that even if higher earners were hit with higher taxes, their migration out of the system meant that there was not enough of them to make a difference.

“Because of the heavy loss of income among high earners and the major reduction in the numbers employed throughout the economy, the burden of increased taxation had to be carried by those on middle incomes.”

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