Cypriot austerity measures hit middle and higher income families

The pre-bailout austerity measures implemented in Cyprus were both mild and directed more at middle and higher income families rather than the poor. However, the ability of the government to cut social expenditure and or raise taxes while protecting the poor is likely to be limited post-bailout, according to a new EUROMOD study published by ISER.

Austerity and the Income Distribution: The Case of Cyprus by Christos Koutsampelas and Alexandros Polycarpou, has found the first round of austerity measures in Cyprus have had more impact on higher and middle income families.

“Up to now, welfare state institutions appear resilient to the first waves of austerity. Benefits cuts were not extensive and designed in progressive fashion. The government even introduced a new social benefit in order to meet the needs of one of the most vulnerable social groups (lone parents).

This development overwhelms the negative distributional implications of the child benefit reform while increases considerably the welfare of single parent families. Despite that the the worsening labour market conditions and the increase of unemployment will affect families with children, child poverty is likely to remain at relatively low levels. Elderly poverty is moving downwards but this is only because the income position of the elderly is improving in relative terms. In absolute terms, their economic well-being is likely to decrease. Finally, in-work poverty remains at low levels but most probably will increase in the upcoming years."

Using EUROMOD, the tax and benefit microsimulation unit, based at ISER, the economists were able to study the impact of national austerity measures and estimate the impact of future cuts to welfare.

They found that:

“The first phase of the austerity era was not marked by shrinkage of the welfare state. […]. However the rules of games change rapidly. It is likely that the budgetary constraints will soon exert pressure to the coverage and generosity of social benefits and a further shift from universal benefits to targeted benefits will take place”

Austerity and the Income Distribution: The Case of Cyprus is published as part of the EUROMOD Working Paper series.