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

  • Immervoll, Herwig

    (University of Cambridge, OECD, European Centre for Social Welfare Policy and Research, Vienna and IZA, Bonn)

  • Levy, Horacio

    (University of Essex)

  • Lietz, Christine

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)

  • Mantovani, Daniela

    (University of Cambridge and Prometeia, Bologna)

  • O'Donoghue, Cathal

    (National University of Ireland, Galway, IZA, Bonn and CHILD)

  • Sutherland, Holly

    (University of Essex and DIW Berlin)

  • Verbist, Gerlinde

    (University of Antwerp)

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 taxbenefit systems to assess and compare the effectiveness of individual policies at reducing income disparities. 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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Paper provided by Institute for Advanced Studies in its series Economics Series with number 184.

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Length: 24 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:ihs:ihsesp:184
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  1. 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).
  2. Whitehouse, Edward, 2000. "How Poor are the Old? A Survey of Evidence from 44 Countries," MPRA Paper 14177, University Library of Munich, Germany.
  3. 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.
  4. Mantovani, Daniela & Sutherland, Holly, 2003. "Social indicators and other income statistics using the EUROMOD baseline: a comparison with Eurostat and National Statistics," EUROMOD Working Papers EM1/03, EUROMOD at the Institute for Social and Economic Research.
  5. 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.
  6. Sutherland, Holly & Immervoll, Herwig & O'Donoghue, Cathal, 1999. "An introduction to EUROMOD," EUROMOD Working Papers EM0/99, EUROMOD at the Institute for Social and Economic Research.
  7. Berglas, Eitan, 1971. "Income Tax and the Distribution of Income: An International Comparison," Public Finance = Finances publiques, , vol. 26(4), pages 532-45.
  8. Robin Boadway & Michael Keen, 1999. "Redistribution," Working Papers 983, Queen's University, Department of Economics.
  9. 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.
  10. 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.
  11. Zandvakili, Sourushe, 1994. "Income Distribution and Redistribution through Taxation: An International Comparison," Empirical Economics, Springer, vol. 19(3), pages 473-91.
  12. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, vol. 27(1), pages 63-90.
  13. 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.
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