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Welfare Benefits and Work Incentives. An Analysis of the Distribution of Net Replacement Rates in Europe using EUROMOD, a Multi- Country Microsimulation Model

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  • Herwig Immervoll

    (University of Cambridge and European Centre for Social Welfare Policy and Research - Vienna)

  • Cathal O'Donoghue

    (University of Cambridge and National University of Ireland - Galway)

Abstract

This paper considers the methodology of measuring replacement rates, comparing simulation based approaches, which simulate replacement rates for a representative sample of the population, with other approaches that simulate replacement rates for "typical" families or are entirely based on recorded household data. We emphasise the advantages of the first method. Utilising a cross-country microsimulation model for Europe, EUROMOD, we generate the distribution of replacement rates for four European countries, Denmark, France, Spain and the UK. In particular we show the important role of household composition and the presence of other household members' incomes in preserving the standard of living while out of work. We argue that, given this strong influence of primary incomes, replacement rates are not necessarily the best indicator of the impact of the taxbenefit system in this respect. To isolate the effects of the tax-benefit system on both work incentives and the degree of social protection for the out-of-work population, we therefore introduce a new measure, the “tax-benefit-to-earnings ratio”.

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Bibliographic Info

Paper provided by EconWPA in its series Labor and Demography with number 0302001.

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Date of creation: 07 Feb 2003
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Handle: RePEc:wpa:wuwpla:0302001

Note: Type of Document - ; figures: included. EUROMOD web-site:
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Web page: http://128.118.178.162

Related research

Keywords: Net Replacement Rate; Unemployment Benefits; Work Incentives; European Union; Microsimulation;

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References

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  1. Aino Salom�ki & Teresa Munzi, 1999. "Net Replacement Rates of the Unemployed. Comparison of various approaches," European Economy - Economic Papers 133, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
  3. Tim Callan & Brian Nolan & Cathal O'Donoghue, 1996. "What Has Happened to Replacement Rates?," Papers WP076, Economic and Social Research Institute (ESRI).
  4. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
  5. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 893-928, October.
  6. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  7. Riphahn, Regina T., 2000. "Rational Poverty or Poor Rationality? The Take-up of Social Assistance Benefits," IZA Discussion Papers 124, Institute for the Study of Labor (IZA).
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  11. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
  12. Frédéric Berger & Monique Borsenberger & Herwig Immervoll & Julie Lumen & Bertrand Scholtus & Klaas DeVos, 2003. "The Impact Of Tax-Benefit Systems On Lowincome Households In The Benelux Countries. A Simulation Approach Using Synthetic Datasets," Microeconomics 0302003, EconWPA, revised 07 Feb 2003.
  13. FitzRoy, Felix R & Hart, Robert A, 1985. "Hours, Layoffs and Unemployment Insurance Funding: Theory and Practice in an International Perspective," Economic Journal, Royal Economic Society, vol. 95(379), pages 700-713, September.
  14. Immervoll, H., 2000. "Fiscal Drag - An Automatic Stabiliser?," Cambridge Working Papers in Economics 0025, Faculty of Economics, University of Cambridge.
  15. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
  16. Snower, Dennis J., 1994. "Evaluating Unemployment Policies: What do the Underlying Theories Tell Us?," CEPR Discussion Papers 1081, C.E.P.R. Discussion Papers.
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  18. David Carey & Harry Tchilinguirian, 2000. "Average Effective Tax Rates on Capital, Labour and Consumption," OECD Economics Department Working Papers 258, OECD Publishing.
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Citations

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Cited by:
  1. Burlacu, Irina S. & O'Donoghue, Cathal, 2012. "Differential Welfare State Impacts for Frontier Working Age Families," IZA Discussion Papers 6734, Institute for the Study of Labor (IZA).
  2. Immervoll, Herwig & Kleven, Henrik & Kreiner, Claus Thustrup & Saez, Emmanuel, 2004. "Welfare Reform in European Countries: A Micro-Simulation Analysis," CEPR Discussion Papers 4324, C.E.P.R. Discussion Papers.
  3. Natascha Van Mechelen & Sarah Marchal & Tim Goedemé & Ive Marx & Bea Cantillon, 2011. "The CSB-Minimum Income Protection Indicators dataset (CSB-MIPI)," Working Papers 1105, Herman Deleeck Centre for Social Policy, University of Antwerp.
  4. Figari, Francesco & Immervoll, Herwig & Levy, Horacio & Sutherland, Holly, 2007. "Inequalities Within Couples: Market Incomes and the Role of Taxes and Benefits in Europe," IZA Discussion Papers 3201, Institute for the Study of Labor (IZA).
  5. Herwig Immervoll & Cathal O'Donoghue, 2003. "Towards A Multi-Purpose Framework For Tax-Benefit Microsimulation," Computational Economics 0302002, EconWPA.
  6. Bargain, Olivier & Orsini, Kristian, 2006. "In-work policies in Europe: Killing two birds with one stone?," Labour Economics, Elsevier, vol. 13(6), pages 667-697, December.
  7. Li, Jinjing & O'Donoghue, Cathal, 2011. "Incentives of Retirement Transition for Elderly Workers: An Analysis of Actual and Simulated Replacement Rates in Ireland," IZA Discussion Papers 5865, Institute for the Study of Labor (IZA).
  8. Libor Dousek & Klara Kaliskova & Daniel Munich, 2013. "Distribution of Average, Marginal and Participation Tax Rates among Czech Taxpayers: Results from a TAXBEN Model," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(6), pages 474-504, December.
  9. repec:ese:emodwp:em6-08 is not listed on IDEAS

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