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Distributional effects of non-cash incomes in seven European countries

Panos Tsakloglou
Athens University of Economics and Business, Greece

Most empirical distributional studies rely on distributions of disposable income. From a theoretical point of view this practice is contentious since a household’s command over resources is determined not only by its spending power over commodities it can buy in the market but also on resources available to the household members through non-market mechanisms (in-kind provisions of the welfare state, private non-cash incomes, etc). The paper examines the combined effects of including three of the most important non-cash incomes enjoyed by private households in the concept of resources in seven European countries (Belgium, Germany, Greece, Italy, Ireland, Netherlands, UK): imputed rent, public education services and public health care services. Further, limited evidence is presented on the likely distributional effects of home production and fringe benefits. The empirical results show that, in a framework of static incidence analysis, the inclusion of these non-cash income components in the concept of resources leads to a substantial decline in the measured levels of inequality and poverty. Nevertheless, this inclusion does not lead to either substantial change in the ranking of the countries according to their level of inequality or significant changes in the structure of inequality. The welfare interpretation of some of the findings is not straightforward, especially regarding the universally provided public health and education services that have a strong life-cycle pattern. If adjustments are made to the equivalence scales to take account of differences in needs for health and education services, the distributional effects appear to be far more modest.

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