Irish tax system does most in Europe to reduce inequality
No other tax system in Europe does more to reduce household income inequality than Ireland’s, according to a new study by an economist at the Economic and Social Research Institute (ESRI).
While the distribution of household income in Ireland is the most unequal in the EU before taxes and benefits, the study finds that Ireland’s highly progressive tax system substantially offsets this, bringing inequality in take-home income very close to the EU average.
ESRI economist and author of the study, Dr. Barra Roantree, said:
“Before taxes, inequality in Irish household income is much higher than the EU average. But our tax system does more to reduce this than any other country in Europe.”
“Two particularly progressive features of our tax system are the broad-based Universal Social Charge and the early level that the higher-rate of income tax kicks in. Together, these bring the level of inequality in take-home income very close to the EU average”, he added.
The analysis will be presented during the 130th Barrington Lecture this evening [Thursday 23rd January] at the Royal Irish Academy on Dawson Street. It draws on household survey data collected by the ESRI, Central Statistics Office (CSO) and other European statistical agencies between 1987 and 2017, and marks the most in-depth study of how income inequality in Ireland has evolved over the last 30 years.
Other findings include:
- Inequality in income before taxes and benefits has increased over the last 30 years, leaving that of the top 10% of households more than 2.6 times that of the median – or middle – household in 2017 (the most recent year for which data is available).
- However, inequality in household take-home income has declined on most measures over this time. This is largely because growth was particularly strong for lower-income households between 1997 and 2007, when incomes for the bottom fifth of households rose by an average of more than 12 per cent per year in real terms (after accounting for inflation).
- While benefits reduce income inequality substantially in all EU countries, the tax system does relatively more in Ireland than in any other EU country. In 2017, taxes lowered the Irish Gini coefficient (see note below) by a fifth: almost twice the EU average
Notes for Editors:
- Income inequality is typically measured using the Gini coefficient, which ranges from 0 (where everyone has the same income) to 1 (where one person holds all income). In 2017, the Gini coefficient in Ireland was 0.544 for income before taxes and benefits (the highest in the EU), 0.377 before taxes (the 5th highest in the EU) but 0.306 for take-home income (the 13th highest in the EU).
- The paper uses survey data from the 1987 Survey of Income Distribution, Poverty and Usage of State Services, the 1994-2001 Living in Ireland survey and the EU Survey on Income and Living Conditions (EU-SILC), collected annually since 2003.
- The Barrington Lecture marks the award of the Barrington Medal by the Council of the Statistical and Social Inquiry Society of Ireland (SSISI) under the auspices of the Barrington Trust. The award recognises promising new researchers in the economic and social sciences in Ireland. This is the 171st anniversary of the lecture series and Dr. Roantree is the 130th Barrington Lecturer.
- Dr. Barra Roantree is an economist at the ESRI whose work studies inequality, living standards, taxation, welfare and pensions. He joined the ESRI in 2018 and previously worked as an economist at the Institute for Fiscal Studies in London, where he obtained a PhD in economics from University College London (UCL).
- Dr. Barra Roantree will deliver the Barrington lecture at the Royal Irish Academy, 19 Dawson Street, Dublin 2 on Thursday, 23 January at 5:30pm. See More