A Microsimulation Analysis of the Distributional Impact over the Three Waves of the COVID-19 Crisis in Ireland

TL;DR

This study uses microsimulation and nowcasting to analyze how COVID-19 affected income distribution in Ireland across three waves, showing policy measures mitigated inequality but benefits became more targeted over time.

Contribution

It introduces a novel microsimulation approach combined with nowcasting to assess COVID-19's distributional impact and evaluates the effectiveness of income-support policies in Ireland.

Findings

Policy measures prevented increase in income inequality during all waves

Benefits became more targeted over time, reducing overall generosity

Welfare measure choice is crucial in impact assessment

Abstract

This paper relies on a microsimulation framework to undertake an analysis of the distributional implications of the COVID-19 crisis over three waves. Given the lack of real-time survey data during the fast moving crisis, it applies a nowcasting methodology and real-time aggregate administrative data to calibrate an income survey and to simulate changes in the tax benefit system that attempted to mitigate the impacts of the crisis. Our analysis shows how crisis-induced income-support policy innovations combined with existing progressive elements of the tax-benefit system were effective in avoiding an increase in income inequality at all stages of waves 1-3 of the COVID-19 emergency in Ireland. There was, however, a decline in generosity over time as benefits became more targeted. On a methodological level, our paper makes a specific contribution in relation to the choice of welfare measure in assessing the impact of the COVID-19 crisis on inequality.