Inequality, Poverty, and the Crisis in Southern Europe

Southern European welfare states are under considerable stress. On the one hand, the recession has been causing unemployment to rise and household incomes to fall, which both raise the demand for social protection. On the other hand, austerity policies and programme reforms affect the capacity of welfare states to provide social protection. This paper aims to review recent developments as regards the social impact of the crisis in Portugal, Spain, Italy and Greece. Since official statistics tend to lag behind by two to three years, we ‘microsimulate’ more recent changes using the European tax-benefit model EUROMOD. In particular, we analyse how the distribution of incomes has been changing under the impact of the crisis. We provide an assessment of how (and to what extent) inequality and poverty have risen as a result two interrelated factors: the austerity measures taken to reduce fiscal deficits, and the wider recession causing business closures and job losses. We quantify the distributional impact of both, and estimate 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.