The Impact of the COVID-19 Crisis on Income Distribution Under Different Protection Schemes: the Case of Spain

Abstract

I used household survey data to microsimulate the impact of the COVID-19 crisis on income distribution in Spain. I estimate the cost of potential lockdowns on income under three different protection scenarios: no minimum income state protection, 2020’s Ingreso Mínimo Vital (IMV) and the former Renta Mínima de Inserción (RMI). Results show that COVID crisis reduces income for the entire income distribution and, even in the context of a relatively efficient redistributive system, increases inequality and poverty at various levels. The IMV approach is the most efficient one in smoothing the impact of the COVID-19 crisis on income distribution. It may be necessary to rise taxes and to reduce other expenditure policies to maintain current protection in a context of lower public revenues.I used household survey data to microsimulate the impact of the COVID-19 crisis on income distribution in Spain. I estimate the cost of potential lockdowns on income under three different protection scenarios: no minimum income state protection, 2020’s Ingreso Mínimo Vital (IMV) and the former Renta Mínima de Inserción (RMI). Results show that COVID crisis reduces income for the entire income distribution and, even in the context of a relatively efficient redistributive system, increases inequality and poverty at various levels. The IMV approach is the most efficient one in smoothing the impact of the COVID-19 crisis on income distribution. It may be necessary to rise taxes and to reduce other expenditure policies to maintain current protection in a context of lower public revenues.