Seminar Room 2, Building 24, University of Canberra
Income inequality and the role of the tax-benefit system in mitigating inequality in Australia has attracted the attention of the public and academic literature throughout the past decade. While the inequality itself in Australia has not changed dramatically over the past decade, several factors such as the financial crisis have contributed to the fluctuations in inequality with varying degrees.
In this paper, we examine the effect of four main components (policy, market income, demography and other factors) on the year-over-year changes in income inequality in Australia between 2002 and 2016 by using the HILDA surveys and extending the decomposition framework suggested by Bargain & Callan (2010) and Biewen & Juhasz (2012). The decomposition separates the contribution of each factor by comparing the current income distribution with the one calculated in the counterfactual where marginal changes in each of the components are introduced. For each counterfactual, the paper uses the tax-transfer STINMOD+ model to simulate the household disposable income based on the corresponding tax and social transfer rules in Australia. Our decomposition framework also incorporates a flexible non-parametric market income model which captures better the demand side shock rather than a standard parametric model. Our results suggest that the primary driver of the inequality in Australia over the past decade is market income for most segments of the income distribution. Demographic factors, on the other hand, are consistent factors that reduce income inequality. Policy factors also have a moderate impact in improving the equality in overall. Its contribution should be more considerable without the 2006 tax reform. Compared to demographic factors, policy reforms play a more critical role for the lower income earners after the financial crisis, mostly due to the 2009 pension reform.
Dr Jinjing Li is an Associate Professor at the NATSEM, University of Canberra. He is an expert in data-driven policy simulation models that are used to evaluate the societal and economic impact of public policies. He leads a specialised team at NATSEM in modelling the Australian tax and transfer system. Jinjing has developed numerous policy simulation models for different government agencies, think tanks and international organisations worldwide, and presently serves as a board member of the International Microsimulation Association.
This research uses results from NATSEM's STINMOD+ tax and transfer microsimulation model. For more information, please visit https://stinmod.canberra.edu.au