The Distribution of Income in Ireland (2000) - Combat Poverty Agency

46 The Distribution of Income in IrelandTable 4.6: Suits Progressivity Index and Average Tax Ratefor Income Tax and PRSI Contributions, 1973, 1980, 1987and 1994/95Average Tax Rate (%)Income taxPRSI contributionsTotalSuits Progressivity IndexIncome taxPRSI contributionsTotal1973 1980 1987 1994/957.82.09.80.194-0.0740.13812.92.215.10.2070.0560.18515.43.518.90.2750.1330.24914.23.717.80.2820.1470.254Source: Figures for 1973 from Nolan (1981), for 1980, 1987 and 1994-95 calculatedfrom HBS Reports.Focusing on the degree of progressivity, Nolan (1981) used theSuits progressivity index to show that in 1973 income tax wasprogressive but social security contributions were mildly regressive(as indicated by the negative value of the index). 12From Table 4.6 we see that by 1980 income tax was slightlymore progressive but social insurance contributions were nowalso progressive. 13 Between 1980 and 1987, income tax becamea good deal more progressive and so did social insurance contributions.However, contributions became a more importantelement in the total over this period and remained a good dealless progressive than income tax. The net result was that theSuits index for income tax plus social insurance contributionstogether rose by almost as much between 1973-1980 as between1980-1987, registering an increase of 34 per cent in theearner period and 35 per cent in the later one. Between 1987Trends in Income Distribution since 1973 47and 1994, the Suits index rose marginally for both income taxand social insurance contributions, but they both now declinedas a proportion of gross income.We can analyse in more depth the way the income distributionevolved between 1987 and 1994, by exploiting the fact thatmicrodata is available for those years. We do this by carryingout for 1987 the same sub-group decomposition analysis thatwe presented for 1994 and 1997 in Chapter 3, using the meanlog deviation inequality measure. Decomposition by labourforce status was the one to reveal the most substantial changesbetween 1994 and 1997, and this also turned out to be the casefor 1987-1994 so we concentrate on those results here. Table4.7 shows that in 1987 inequality between the groups accountedfor 13 per cent of overall inequality, whereas by 1994 this hadrisen to 27 per cent. This reflects the fact that there was lessvariation in mean incomes across the groups in 1987, as well asthe higher inequality within certain groups — notably the selfemployed,the unemployed or ill, and households headed bysomeone working full-time in the home — in that year. Thus by1994 inequality within these groups had declined while thedifferences between the groups in mean incomes had widened,with households headed by someone who was unemployed orill, or working full-time in the home, falling further behind theaverage.12 The index is calculated on the basis of share of tax paid by gross incomegroups and the share of gross income they receive.Murphy (1984) presents the Suits (and Kakwani) progressivity index calculatedfor equivalent (market) income for 1973 and 1980. Like Table 4.6 (basedon unadjusted gross income), this showed the degree of progressivity of in-" ^ ^Sfed * that of employees' social security contributionssignificantly increased between 1973 and 1980.