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Automatic Stabilizers, Economic Crisis and Income Distribution in Europe

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Author Info

  • Dolls, Mathias

    ()
    (ZEW Mannheim)

  • Fuest, Clemens

    ()
    (ZEW Mannheim)

  • Peichl, Andreas

    ()
    (ZEW Mannheim)

Abstract

This paper investigates to what extent the tax and transfer systems in Europe protect households at different income levels against losses in current income caused by economic downturns like the present financial crisis. We use a multi country micro simulation model to analyse how shocks on market income and employment are mitigated by taxes and transfers. We find that the aggregate redistributive effect of the tax and transfer systems increases in response to the shocks. But the extent to which households are protected differs across income levels and countries. In particular, there is little stabilization of disposable income for low income groups in Eastern and Southern European countries.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4917.

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Length: 31 pages
Date of creation: Apr 2010
Date of revision:
Publication status: published in: Research in Labor Economics, 2011, 32, 227-256
Handle: RePEc:iza:izadps:dp4917

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Related research

Keywords: crisis; inequality; automatic stabilization; redistribution;

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References

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  1. Bell, David N.F. & Blanchflower, David G., 2009. "What Should Be Done about Rising Unemployment in the UK?," IZA Discussion Papers 4040, Institute for the Study of Labor (IZA).
  2. John DiNardo & Nicole M. Fortin & Thomas Lemieux, 1995. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," NBER Working Papers 5093, National Bureau of Economic Research, Inc.
  3. Thiess Buettner & Clemens Fuest, 2010. "The role of the corporate income tax as an automatic stabilizer," International Tax and Public Finance, Springer, vol. 17(6), pages 686-698, December.
  4. David Domeij & Martin Floden, 2010. "Inequality Trends in Sweden 1978-2004," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 179-208, January.
  5. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-72, May.
  6. François Bourguignon & Amedeo Spadaro, 2006. "Microsimulation as a tool for evaluating redistribution policies," Journal of Economic Inequality, Springer, vol. 4(1), pages 77-106, April.
  7. Alan J. Auerbach & Daniel R. Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 37-56, Summer.
  8. Callan, Tim & Nolan, Brian & Walsh, John R., 2010. "The Economic Crisis, Public Sector Pay, and the Income Distribution," Papers WP344, Economic and Social Research Institute (ESRI).
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Citations

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Cited by:
  1. Bruno Martorano & UNICEF Innocenti Research Centre, 2013. "The Australian Household Stimulus Package: Lessons from the recent economic crisis," Innocenti Working Papers inwopa697, UNICEF Innocenti Research Centre.
  2. Basso, Gaetano & Dolls, Mathias & Eichhorst, Werner & Leoni, Thomas & Peichl, Andreas, 2011. "The Effects of the Recent Economic Crisis on Social Protection and Labour Market Arrangements across Socio-Economic Groups," IZA Discussion Papers 6080, Institute for the Study of Labor (IZA).
  3. European Commission, 2013. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2013 Report," Taxation Papers 38, Directorate General Taxation and Customs Union, European Commission.

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