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The Journal of Economic Inequality

, Volume 15, Issue 4, pp 303–323 | Cite as

Reducing poverty and inequality through tax-benefit reform and the minimum wage: the UK as a case-study

  • Anthony B. Atkinson
  • Chrysa Leventi
  • Brian Nolan
  • Holly Sutherland
  • Iva Tasseva
Open Access
Article

Abstract

Atkinson’s book Inequality: What Can Be Done? (Harvard University Press, 2015) sets out a range of concrete proposals aimed at reducing income inequality, which cover a very broad span but include major changes to the income tax and social transfers system and the minimum wage. These are framed with specific reference to the UK but have much broader relevance in demonstrating how substantial the impact on inequality of such measures could be. This paper assesses the first-round effects of these tax, transfer and minimum wage reforms on income inequality and poverty based on a microsimulation approach using EUROMOD. The reforms involve a significantly more progressive income tax structure, a major increase in the minimum wage to the level which is estimated to represent the ‘Living Wage’, and alternative routes to reforming social transfers – either to strengthen the social insurance element or to restructure the entire system as a Participation Income (a variant of Basic/Citizen’s Income). The results show how the first-round effects of either set of tax and transfer proposals would be to substantially reduce the extent of income inequality and relative income poverty and the paper draws out how the two approaches differ in their effects. The additional impact of raising the minimum wage to the Living Wage is modest, reflecting in particular the position of beneficiaries in the household income distribution and the offsetting effects on household income of the withdrawal of means-tested cash transfers.

Keywords

Income inequality Poverty Redistribution Tax-benefit reform Microsimulation 

Notes

Acknowledgements

Tony Atkinson sadly passed away on January 1st, 2017, as we were in the final stages of completing this paper. It fully reflects the discussions we had and our joint views. We are grateful to the journal editor and an anonymous reviewer for their constructive recommendations. We are also grateful to Paola De Agostini, Mike Brewer and Xavier Jara for their expert advice and assistance. We received helpful comments on earlier draughts at the 2016 London conference of the Association for Public Policy Analysis and Management (APPAM), the 2016 EUROMOD 20th Anniversary Conference at the University of Essex, and seminars at the University of Oxford Department of Social Policy and Intervention and the Institute for New Economic Thinking. We use EUROMOD version G2.11. Family Resources Survey data are made available by the Department of Work and Pensions via the UK Data Archive. The authors alone are responsible for the analysis, interpretation and any errors that remain.

Supplementary material

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Copyright information

© The Author(s) 2017

Open AccessThis article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

Authors and Affiliations

  • Anthony B. Atkinson
    • 1
  • Chrysa Leventi
    • 2
  • Brian Nolan
    • 3
  • Holly Sutherland
    • 2
  • Iva Tasseva
    • 2
  1. 1.Institute for New Economic Thinking and Nuffield CollegeUniversity of OxfordOxfordUK
  2. 2.Institute for Social and Economic ResearchUniversity of EssexColchesterUK
  3. 3.Institute for New Economic Thinking, Department of Social Policy and Intervention and Nuffield CollegeUniversity of OxfordOxfordUK

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