The Distributional Effects of Tax-Benefi t Policiesunder New Labour: A Shapley Decomposition

Using counterfactual microsimulations, Shapley decompositions of time change in inequalityand poverty indices make it possible to disentangle and quantify the relative effect of taxbenefitpolicy changes, compared to all other effects including shifts in the distribution ofmarket income. Using this approach also helps to clarify the different issues underlying thedistributional evaluation of policy reforms. An application to the UK (1998-2001) confirmsprevious findings that inequality and depth of poverty would have increased under the firstNew Labour government, had important reforms like the extensions of income support andtax credits not been implemented. These reforms have also contributed to substantiallyreduce poverty among families with children and pensioners....