Changes in the Profile of Inequality Across Europe Since 2005 : Austerity & Redistribution

The dual objectives of this paper are to present two inequality indices that provide a more nuanced picture of how the profile of inequality changed across European countries since 2005, and to use these indices to analyze the distributional changes that can be attributed to the push for austerity. We estimate the JV-indices for inequality at the top and the bottom for 24 European countries over 9 years. We then use this panel to understand the distributional effects of the fiscal consolidation policies Europe endured after the 2008 crisis. We find austerity deepened income inequality in Eurozone countries, but reduced income inequality in countries that do not use the euro as their currency. We uncover a significant new relationship between austerity policy and the tails of the income distribution, further suggesting that these policies on average amount to a redistribution from the bottom to the top