An extended view on inequality and redistribution in the European Union — The role of indirect taxation and in-kind benefits

This paper extends the concept of disposable income by including in-kind benefits provided by the government for education and health services, as well as imputed VAT payments, following Figari and Paulus (2015). Our analysis shows that the inclusion of these elements significantly reduces income inequality, as evidenced by a decrease in the Gini coefficient in all countries analysed. While direct taxes and cash transfers are the main drivers of redistribution, in-kind transfers also play a significant role, while VAT has a smaller negative impact. Our study shows that an additional broadening of the income concept also increases the targeting of the tax-benefit system towards low-income households, but to a very different extent across EU Member States. Our new, broader approach allows for a more accurate assessment of redistribution and cross-country comparisons, providing valuable insights for policy evaluation at the EU level.