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Demographic Change and the European Income Distribution

Author

Listed:
  • Dolls, Mathias

    (Ifo Institute for Economic Research)

  • Doorley, Karina

    (Economic and Social Research Institute, Dublin)

  • Paulus, Alari

    (ISER, University of Essex)

  • Schneider, Hilmar

    (University of Luxembourg)

  • Sommer, Eric

    (AXA AG)

Abstract
This paper assesses the effect of key demographic changes (population ageing and upskilling) that are expected by 2030 on the income distribution in the EU-27 and examines the potential of tax-benefit systems to counterbalance negative developments. Theory predicts that population ageing should increase income inequality, while the effect of up-skilling is more ambiguous. Tax-benefit systems may stabilize these expected changes though this is largely an empirical question given their typically complex nature. We use a decomposition technique to isolate the effect of projected demographic change on income inequality and poverty from the reaction of the labor market to this demographic change through wage adjustments. Our results show that demographic change is likely to lead to increasing inequality while related wage adjustments work mainly in the opposite direction. Changes to projected relative poverty are minimal for most countries. With a few exceptions, EU tax-benefit systems are able to absorb most of projected increase in market income inequality.

Suggested Citation

  • Dolls, Mathias & Doorley, Karina & Paulus, Alari & Schneider, Hilmar & Sommer, Eric, 2018. "Demographic Change and the European Income Distribution," IZA Discussion Papers 11440, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp11440
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    References listed on IDEAS

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    4. Salvador Barrios & Flavia Coda Moscarola & Francesco Figari & Luca Gandullia, 2020. "Size and distributional pattern of pension-related tax expenditures in European countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(5), pages 1287-1320, October.
    5. Michael Christl & Silvia Poli & Tine Hufkens & Andreas Peichl & Mattia Ricci, 2023. "The role of short-time work and discretionary policy measures in mitigating the effects of the COVID-19 crisis in Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(4), pages 1107-1136, August.
    6. Md Jamil, Abd Rahim & Law, Siong Hook & Khair-Afham, M.S. & Trinugroho, Irwan, 2024. "Financial inclusion and income inequality in developing countries: The role of aging populations," Research in International Business and Finance, Elsevier, vol. 67(PA).
    7. Simplice A. Asongu & Beatrice D. Simo-Kengne, 2022. "Demographic Change and Wealth Inequality: Global Evidence," Working Papers of the African Governance and Development Institute. 22/085, African Governance and Development Institute..
    8. Prashant Kumar Choudhary & Priyanka Saharia, 2023. "Global income inequality and measuring values with the world values survey," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 25(1), pages 103-122, June.
    9. Patrik Rovný & Serhiy Moroz & Jozef Palkovič & Elena Horská, 2021. "Impact of Demographic Structure on Economic Development of Ukrainian Coastal Regions," Sustainability, MDPI, vol. 13(4), pages 1-19, February.
    10. Jinjing Li & Hai Anh La & Denisa M. Sologon, 2021. "Policy, Demography, and Market Income Volatility: What Shaped Income Distribution and Inequality in Australia Between 2002 and 2016?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(1), pages 196-221, March.
    11. LI Jinjing & LA Hai anh & SOLOGON Denisa, 2019. "Policy, demography and market income volatility: What was shaping income distribution in Australia between 2002 and 2016?," LISER Working Paper Series 2019-02, Luxembourg Institute of Socio-Economic Research (LISER).
    12. Shaik, Muhammad Raees & Goh, Soo Khoon & Wong, Koi Nyen & Law, Chee Hong, 2024. "Does population aging coexist with income inequality in the long run? Evidence from selected Asia-Pacific countries," Economic Systems, Elsevier, vol. 48(1).
    13. Barhoom Faeyzh, 2023. "Revisiting the Financial Development and Income Inequality Nexus: Evidence from Hungary," Acta Universitatis Sapientiae, Economics and Business, Sciendo, vol. 11(1), pages 227-257, October.
    14. Amer Ahmed & Maurizio Bussolo & Marcio Cruz & Delfin S. Go & Israel Osorio-Rodarte, 2020. "Global Inequality in a more educated world," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(4), pages 585-616, December.
    15. Mădălina-Gabriela ANGHEL & Dragoș-Alexandru HAȘEGAN, 2021. "Statistical analysis on population ageing," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(627), S), pages 83-96, Summer.

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    More about this item

    Keywords

    labor market; demography; income distribution; decomposition;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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