Policy, Demography and Market Income Volatility: What Was Shaping Income Distribution in Australia Between 2002 and 2016?

Jinjing Li, Hai Anh La, Denisa Maria Sologon

Research output: Working paper

Abstract

Isolating the impact of policy, demographic shifts and market volatility on changes in income inequality is of great interest to policymakers. However, such estimation can be difficult due to the complex interactions and evolutions in the social and economic environment. Through an extended decomposition framework, this paper estimates the effect of four main components (policy, demography, market income and other factors) on the year-over-year changes in income inequality in Australia between 2002 and 2016. This was a period marked by substantial policy, population and economic shifts due to factors such as the mining boom, the global financial crisis and increasing immigration. The framework also incorporates a flexible non-parametric market income model which captures demand-side shock better than a standard parametric model. Our results suggest that market income was the primary driver of income inequality for all segments of the income distribution in Australia over the past 15 years. Policy factors, on the other hand, have had a moderate impact on reducing inequality overall, but a more critical role for lower income earners.
Original languageEnglish
Place of PublicationLuxembourg
PublisherLuxembourg Institute of Socio-Economic Research (LISER)
Pages1-46
Number of pages46
Volume2
DOIs
Publication statusPublished - Jan 2019

Publication series

NameSSRN Electronic Journal

Fingerprint

Income
Demography
Factors
Income distribution
Income inequality
Economic policy
Parametric model
Global financial crisis
Interaction
Politicians
Social environment
Demographics
Low income
Immigration
Population policy
Decomposition
Market volatility
Economic environment

Cite this

Li, J., La, H. A., & Sologon, D. M. (2019). Policy, Demography and Market Income Volatility: What Was Shaping Income Distribution in Australia Between 2002 and 2016? (pp. 1-46). (SSRN Electronic Journal). Luxembourg : Luxembourg Institute of Socio-Economic Research (LISER) . https://doi.org/10.2139/ssrn.3325770
Li, Jinjing ; La, Hai Anh ; Sologon, Denisa Maria. / Policy, Demography and Market Income Volatility: What Was Shaping Income Distribution in Australia Between 2002 and 2016?. Luxembourg : Luxembourg Institute of Socio-Economic Research (LISER) , 2019. pp. 1-46 (SSRN Electronic Journal).
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Li, J, La, HA & Sologon, DM 2019 'Policy, Demography and Market Income Volatility: What Was Shaping Income Distribution in Australia Between 2002 and 2016?' SSRN Electronic Journal, Luxembourg Institute of Socio-Economic Research (LISER) , Luxembourg , pp. 1-46. https://doi.org/10.2139/ssrn.3325770

Policy, Demography and Market Income Volatility: What Was Shaping Income Distribution in Australia Between 2002 and 2016? / Li, Jinjing; La, Hai Anh; Sologon, Denisa Maria.

Luxembourg : Luxembourg Institute of Socio-Economic Research (LISER) , 2019. p. 1-46 (SSRN Electronic Journal).

Research output: Working paper

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AU - Li, Jinjing

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AU - Sologon, Denisa Maria

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N2 - Isolating the impact of policy, demographic shifts and market volatility on changes in income inequality is of great interest to policymakers. However, such estimation can be difficult due to the complex interactions and evolutions in the social and economic environment. Through an extended decomposition framework, this paper estimates the effect of four main components (policy, demography, market income and other factors) on the year-over-year changes in income inequality in Australia between 2002 and 2016. This was a period marked by substantial policy, population and economic shifts due to factors such as the mining boom, the global financial crisis and increasing immigration. The framework also incorporates a flexible non-parametric market income model which captures demand-side shock better than a standard parametric model. Our results suggest that market income was the primary driver of income inequality for all segments of the income distribution in Australia over the past 15 years. Policy factors, on the other hand, have had a moderate impact on reducing inequality overall, but a more critical role for lower income earners.

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KW - Inequality Decomposition

KW - STINMOD+

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Li J, La HA, Sologon DM. Policy, Demography and Market Income Volatility: What Was Shaping Income Distribution in Australia Between 2002 and 2016? Luxembourg : Luxembourg Institute of Socio-Economic Research (LISER) . 2019 Jan, p. 1-46. (SSRN Electronic Journal). https://doi.org/10.2139/ssrn.3325770