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Household Incomes and Redistribution in the European Union: Quantifying the Equalising Properties of Taxes and Benefits

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Author Info

  • Immervoll, Herwig

    ()
    (OECD, Paris)

  • Levy, Horacio

    ()
    (University of Essex)

  • Lietz, Christine

    ()
    (IHS - Institute for Advanced Studies, Vienna)

  • Mantovani, Daniela

    ()
    (University of Modena and Reggio Emilia)

  • O'Donoghue, Cathal

    ()
    (Teagasc Rural Economy Research Centre)

  • Sutherland, Holly

    ()
    (ISER, University of Essex)

  • Verbist, Gerlinde

    ()
    (University of Antwerp)

Abstract

The systems of direct taxes and cash benefits in the Member States of the European Union vary considerably in size and structure. We explore their direct impacts on cross-sectional income inequality (termed "redistributive effect" for the purpose of this paper) using EUROMOD, a tax-benefit microsimulation model for the European Union. This relies on harmonised household micro-data representative of each national population together with simulations of entitlements to cash benefits and liabilities for taxes and social contributions. It allows us to draw a more comprehensive – and comparable – picture of the combined effects of transfers and taxes than is usually possible. We decompose the redistributive effect of tax-benefit systems to assess and compare the effectiveness of individual policies at reducing income disparities. The following categories of benefits and taxes are considered both individually and in combination: income taxes, social contributions, cash benefits designed to target the poor or redistribute inter-personally (through means-testing) as well as cash benefits intended to redistribute intra-personally across the lifecycle (through social insurance or contingency-based entitlement). We derive results for the 15 "old" members of the European Union and present them for each country separately as well as for the EU-15 as a whole.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1824.

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Length: 27 pages
Date of creation: Oct 2005
Date of revision:
Publication status: published in: Papadimitriou, D.B. (ed.), The Distributional Effects of Government Spending and Taxation, Palgrave MacMillan 2006
Handle: RePEc:iza:izadps:dp1824

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Keywords: microsimulation; redistribution; income inequality; European Union;

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  1. repec:ese:emodwp:em1-03 is not listed on IDEAS
  2. Yitzhaki, Shlomo, 1983. "On an Extension of the Gini Inequality Index," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 617-28, October.
  3. Duclos, Jean-Yves, 1993. "Progressivity, Redistribution, and Equity, with Application to the British Tax and Benefit System," Public Finance = Finances publiques, , vol. 48(3), pages 350-65.
  4. Wagstaff, Adam & van Doorslaer, Eddy & van der Burg, Hattem & Calonge, Samuel & Christiansen, Terkel & Citoni, Guido & Gerdtham, Ulf-G. & Gerfin, Michael & Gross, Lorna & Hakinnen, Unto, 1999. "Redistributive effect, progressivity and differential tax treatment: Personal income taxes in twelve OECD countries," Journal of Public Economics, Elsevier, vol. 72(1), pages 73-98, April.
  5. Donaldson, David & Weymark, John A., 1980. "A single-parameter generalization of the Gini indices of inequality," Journal of Economic Theory, Elsevier, vol. 22(1), pages 67-86, February.
  6. Jean-Marc Burniaux & Thai-Thanh Dang & Douglas Fore & Michael F. Förster & Marco Mira d'Ercole & Howard Oxley, 1998. "Income Distribution and Poverty in Selected OECD Countries," OECD Economics Department Working Papers 189, OECD Publishing.
  7. Robin Boadway & Michael Keen, 1999. "Redistribution," Working Papers 983, Queen's University, Department of Economics.
  8. Heady, Christopher & Mitrakos, Theodore & Tsakloglou, Panos, 2001. "The Distributional Impact of Social Transfers in the European Union: Evidence from the ECHP," IZA Discussion Papers 356, Institute for the Study of Labor (IZA).
  9. Berglas, Eitan, 1971. "Income Tax and the Distribution of Income: An International Comparison," Public Finance = Finances publiques, , vol. 26(4), pages 532-45.
  10. Whitehouse, Edward, 2000. "How Poor are the Old? A Survey of Evidence from 44 Countries," MPRA Paper 14177, University Library of Munich, Germany.
  11. repec:ese:emodwp:em0-99 is not listed on IDEAS
  12. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, vol. 27(1), pages 63-90.
  13. Zandvakili, Sourushe, 1994. "Income Distribution and Redistribution through Taxation: An International Comparison," Empirical Economics, Springer, vol. 19(3), pages 473-91.
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