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Policy, Demography, and Market Income Volatility: What Shaped Income Distribution and Inequality in Australia Between 2002 and 2016?
Author(s) -
Li Jinjing,
La Hai Anh,
Sologon Denisa M.
Publication year - 2021
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/roiw.12467
Subject(s) - economics , economic inequality , income distribution , income inequality metrics , inequality , population , boom , volatility (finance) , distribution (mathematics) , demographic economics , labour economics , econometrics , mathematical analysis , demography , mathematics , sociology , environmental engineering , engineering
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, moreover, have had the largest net impact on reducing inequality overall, especially for lower income earners.