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Automatic Stabilizers, Economic Crisis and Income Distribution in Europe

  • Dolls, Mathias

    ()

    (ZEW Mannheim)

  • Fuest, Clemens

    ()

    (ZEW Mannheim)

  • Peichl, Andreas

    ()

    (ZEW Mannheim)

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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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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  1. 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.
  2. Thiess Buettner & Clemens Fuest, 2009. "The Role of the Corporate Income Tax as an Automatic Stabilizer," CESifo Working Paper Series 2798, CESifo Group Munich.
  3. 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.
  4. Alan J. Auerbach & Daniel Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," NBER Working Papers 7662, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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).
  7. Domeij, David & Floden, Martin, 2009. "Inequality Trends in Sweden 1978-2004," SSE/EFI Working Paper Series in Economics and Finance 720, Stockholm School of Economics.
  8. Callan, Tim & Nolan, Brian & Walsh, John R., 2010. "The Economic Crisis, Public Sector Pay, and the Income Distribution," IZA Discussion Papers 4948, Institute for the Study of Labor (IZA).
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