The Impact of Covid-19 on Poverty and Inequality in Portugal and the Cushioning Effect of Policies

Joana Silva, Anna Bernard, Francisco Espiga e Madalena Gaspar, PROSPER (Católica-Lisbon’s Center of Economics for Prosperity)
Concurso para apoiar projetos de investigação sobre o impacto social da covid-19 (LL20-3)

To what extent did the Covid-19 pandemic impact poverty and inequality in Portugal? What was the role of the extraordinary cushioning policies in mitigating these effects? Based on a simulation of annual incomes in scenarios with and without this crisis, this study estimates that, even when considering the policy response implemented in 2020, the pandemic led to a 25% increase in poverty (measured by the poverty rate) and a 9% increase in inequality (measured by the ratio between the 95th and the 5th income percentiles), when compared with the no-crisis scenario. Without cushioning policies, similar patterns and results would have been observed just with an 8-week lockdown.
Key points
  • 1
       The crisis prompted by the Covid-19 pandemic resulted in substantial income loss for the Portuguese population. The annual median equivalised income, adjusted for household size and composition, dropped from €10,100 in the no-crisis scenario to €9,100 in the crisis scenario. The average simulated income loss was 7% of yearly income.
  • 2
       Compared to the no-crisis scenario, 400,000 new individuals fell below the poverty line, defined as 60% of the median equivalised income, increasing the at-risk-of-poverty (AROP) rate by 25% as a result of the covid-19 pandemic.
  • 3
       With the biggest losers already in the bottom half of the income distribution, the crisis increased inequality: the ratio between the 95th and 5th income percentiles rose by more than 9% when comparing crisis and no-crisis scenarios.
  • 4
       The crisis had asymmetric effects. The lower and lower-middle classes, the Algarve region and people with only a 9th grade education were the biggest losers from this crisis, with losses clearly above the national average.
  • 5
       The policies enacted by the Portuguese government in 2020 managed to partly mitigate the rise of poverty and inequality. Without these extraordinary programmes, just the initial 8-week lockdown would have had about the same impact on poverty and inequality as estimated for an entire year.
The poverty rate has increased dramatically since the beginning of the Covid-19 pandemic
The poverty rate has increased dramatically since the beginning of the Covid-19 pandemic

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Joana Silva, Anna Bernard, Francisco Espiga e Madalena Gaspar , PROSPER (Católica-Lisbon’s Center of Economics for Prosperity)

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