Analysing the Effects of Tax-Benefit Reforms onIncome Distribution: A Decomposition Approach

To assess the impact of tax-benefit policy changes on income distribution over time, wesuggest a methodology based on counterfactual simulations. We start by decomposingchanges in inequality/poverty indices into three contributions: reforms of the tax-benefitstructure (rules, rates, etc.), changes in nominal levels of market incomes and tax-benefitparameters (benefit amounts, tax bands, etc.), and all other changes in the underlyingpopulation (market income inequality, demographic composition, employment level, etc.)...