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Rural Economy Presentation

The Welfare Impact of Macro-economic changes on Agriculture and other markets Jason Loughrey Walsh Fellow. Rural Economy Presentation. Student Day Programme June 1st 2006. 1. Principle Objective.

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Rural Economy Presentation

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  1. The Welfare Impact of Macro-economic changes on Agriculture and other markets Jason Loughrey Walsh Fellow Rural Economy Presentation Student Day Programme June 1st 2006 1

  2. Principle Objective • To measure the effect of recent macroeconomic changes on the income distribution for people in different sectors of the Irish economy with particular emphasis on the agricultural sector. Student Day Programme June 1st 2006 2

  3. Three approaches to distribution theory • The Neo-Classical View • The Neo-Marxian View • The Neo-Keynesian View Student Day Programme June 1st 2006

  4. Theoretical contributions • The Kuznets curve • Heckscher-Ohlin theory • Stolper-Samuelson theory • Aghion- Time lags in technology adoption • Acemoglu and Schmookler-The market size effect • Atkinson and Stiglitz- Endowments Student Day Programme June 1st 2006

  5. The Kuznets curve • Kuznets (1953) as an increasing proportion of the labour force moves from the low income traditional sector to the high income modern sector, inequality will rise, level off and then decrease. • In the US, inequality peaked in the 1880s and did not begin declining until the 1920s. Student Day Programme June 1st 2006 5

  6. Limitation of traditional approaches • “the assumption that the ‘working class’ receive no income from capital or rent is no longer tenable, with the spread of small savings (either directly or through pension schemes) and of home ownership” (Nolan, 1987) Student Day Programme June 1st 2006

  7. The effect of urbanisation on the income distribution Student Day Programme June 1st 2006

  8. Student Day Programme June 1st 2006

  9. Reasons for boom Lower corporation tax EU membership Delayed convergence Proper handling of public finances The expansion in the US economy Fall in real Irish interest rates Social Partnership Young educated population Student Day Programme June 1st 2006 9

  10. Student Day Programme June 1st 2006 10

  11. Data Sources • 1987 ESRI study of Income distribution and use of state services • The Living in Ireland Survey • European Commission Household Panel Survey • The Household Budget survey • SILC 2003 Student Day Programme June 1st 2006 11

  12. ECHP Attrition • Significant attrition in Panel • By 2001, less than 40% of individuals still in sample • Differential attrition (smaller households more likely to leave • Weighting partly deals with issue Student Day Programme June 1st 2006 12

  13. The regression based decomposition method • Previously developed by Fields and Yoo (2000), Redmond and Kattuman (2001) and Morduch and Sicular (2002), to investigate the contribution made by factors such as unemployment, labour force participation, family status, age distribution, education distribution etc to inequality. Student Day Programme June 1st 2006 13

  14. Future Plans • Tax/Benefit system- Simulate the tax benefit system using the SMILE model. Assess the impact on inequality of keeping the tax benefit system static at 1987. • Test the significance of sector dualism on income inequality. • Social Mobility- Identifying the ability of individuals in different sectors to move between income deciles. • Projection- simulate the income distribution based on alternative assumptions used by the ESRI in their medium term review. • Identify the impact of price changes on welfare. Student Day Programme June 1st 2006 14

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