The Corona Crisis and Household Income: The Case of a Generous Welfare State

Abstract

Using a microsimulation approach, this paper evaluates the distributional consequences of the Covid-19 pandemic in Finland. We use up-to-date administrative data on incomes and employment developments in 2020 at the entire population level. The employment changes for different types of workers are then combined with the dataset underpinning SISU, the Finnish tax-benefit microsimulation model. Finland, as other Nordic countries, is characterized by a generous welfare state offering considerable automatic stabilization. Our results suggest that the welfare state contained the crisis well – even without additional Covid-19-related policies. Inequality, as measured by the Gini index, increased, but only marginally (at one-digit level). The welfare state insured up to 85 per cent of the possible poverty and inequality reduction due to Covid-19.