Household Income Volatility in the UK and the role of the tax and benefit system, 2009-2016

Sandwiches from 1215, Seminar at 12:30

With Mike Brewer, Nick Buck, Paul Fisher, and Laura Fumagalli

We study the volatility of individual- and household-level income in the UK between 2009 and 2016 using data from a large longitudinal household panel survey. The volatility of earnings for the working-age has fallen in this period, partly due to a fall in the prevalence of large negative earnings shocks. For older aged individuals, we also find a large fall in the volatility of private income, mainly as a result of a fall in large positive income shocks. The tax-benefit system significantly reduces volatility, especially for retired and low income households. Despite cuts to working age benefits, we find that the effect of the tax benefit system on volatility changed little during this period. While benefits became less well correlated with earnings, volatility trends in household income are dominated by trends in earnings volatility.