The ECB warns: the gap between the poor and the rich increased in Spain despite the ‘social shield’

The package of measures that the Spanish Government deployed last year to confront the inflation crisis did not serve to prevent inequality from increasing in Spain. The warning has been made by the European Central Bank (ECB) in an article published on its blog, where the entity calculates that the inequality gap between the richest ten percent of households and the poorest ten percent is increasing. by more than five percentage points last year in our country.

The issuer also notes that the rally in the consumer price index (CPI), which rose 8.4% for the year as a whole, caused a loss of well-being in wealthy Spanish families of 3.5%. The document, prepared by Maximilian Freier, secretary of the Monetary Policy Committee of the ECB and Mattia Ricci, economist of the Fiscal Measures Policy Analysis Unit of the European Commission, points out that government measures linked to inflation “were more effective in some countries in the euro zone than in others.”

They cite the positive case of France and Italy, where anti-crisis measures helped compensate for the loss of well-being at all income levels; and how in other states, as was the case of Germany (or Spain itself), the inequality between the ten percent of households with the highest income and the ten percent with the lowest income increased by 7.5 percentage points. All in all, in the absence of these policies, the average well-being of households would have fallen by almost 6.7 percentage points in equivalent income in the countries of the region.

The article acknowledges that Eurozone governments acted quickly to protect themselves from the economic and social consequences of rising prices, and how they “often” approved explicit measures to support pensioners and low-income households. They acted through price measures, such as those that introduced ceilings, subsidies or discounts on energy or those that reduced taxes on goods and services (the reduction of VAT on food in Spain); or through income measures, in the form of direct aid or tax credits (such as the 200 euro check).

Specifically, the price measures reduced the increase in inflation by approximately 1.6 percentage points. While price caps or tax cuts cannot be targeted at individual households, those with lower incomes will benefit more in relative terms due to their greater exposure to rising energy prices. For this reason, the report points out that its elimination – planned in many cases for next year, as the ECB itself or the Commission has recommended to the states – “may cause an increase in inflation, partially undoing the initial beneficial impact on The well-being of homes.”

Regarding income measures, they allowed a 1 percentage point increase in the growth of disposable income. Unlike the previous ones, these were aimed primarily at low-income households, so for the 10% of families with the least resources they represented almost half of the growth in their disposable income. At the same time, they are those that served to close more than half of the gap in the loss of well-being between the richest and poorest families. A third element that compensated for the increase in inflation in terms of income was the increase in salaries and wages or the revaluation of pensions and unemployment benefits.

The least expensive and most effective income measures

The authors of the article recall that the measures that governments adopted to curb the effects of price escalation in the Eurozone “were not cheap”, but rather their cost amounted to almost 2% of the region’s GDP last year. In many countries, budget deficits were generated that added to a very high debt over GDP. “This raises questions about the efficiency of government measures to help the most vulnerable households,” they maintain.

According to their calculations, income measures are much more effective in reducing inequality than price measures. If governments intend to help pensioners and low-income families, price measures “are not the most cost-effective policy option”, since they are much more difficult to adapt to specific households. This implies, according to Freier and Ricci, that the cost of closing the same inequality gap was practically double in countries that focused on price measures than in countries that approved income measures. Added to this is that when price measures expire they can cause a “sudden” increase in inflation, partially undoing the beneficial impact they originally had on household well-being.