Relative Income Poverty: Learning from the Best-Performing Countries

Nolan and Callan examine why relative income poverty rates in Ireland have remained high compared with many other EU countries. They begin by presenting the basic facts of the situation and look at a variety of possible explanations for the observed patterns. They conclude that differences in demographic factors, such as age structure, the pattern of labour force participation and household composition do not generally account for differences between Ireland and better performing countries such as Denmark and the Netherlands. The most likely explanation appears to lie in the different tax and welfare structures of these countries which involve substantially higher costs in the form of higher taxation. This conclusion raises important strategic choices in relation to economic incentives, labour market behaviour and economic growth.