Inequality and poverty in Southern Europe

Even though the whole of the European Union has been in recession since 2011, the crisis affecting Southern Europe is considerably more severe and at the same time more protracted. Its impact in terms of falling incomes and rising unemployment is widely perceived to translate into greater inequality and increased poverty. Assessing whether (and to what extent) this is the case is crucial, but is hampered by the lack of prompt data: while Labour Force Survey statistics on unemployment and earnings are readily available within three months from collection, data from income surveys (such as EU-SILC) on inequality and poverty take up to three years to release. In the meantime, microsimulation can provide tentative answers. This paper attempts to quantify the distributional impact of the crisis in Greece, Spain, Portugal and Italy, using the European tax-benefit model EUROMOD. More specifically, we distinguish between two interrelated factors: on the one hand, the austerity policies taken by governments to reduce fiscal deficits; on the other hand, the wider recession affecting jobs and earnings in private firms. With respect to austerity policies, we focus on changes in taxation, public sector pay and pension benefits. With respect to the wider recession, we correct for the rise in unemployment and changes in wages. We simulate the (ceteris paribus) impact of these changes on the distribution of incomes, while also estimating how the total burden of the crisis is shared across income groups. We conclude by discussing the methodological pitfalls and policy implications of our research.