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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”.

Suggested Citation

  • Herwig Immervoll & Cathal O'Donoghue, 2003. "Welfare Benefits and Work Incentives. An Analysis of the Distribution of Net Replacement Rates in Europe using EUROMOD, a Multi- Country Microsimulation Model," Labor and Demography 0302001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpla:0302001
    Note: Type of Document - ; figures: included. EUROMOD web-site:
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    References listed on IDEAS

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    Cited by:

    1. Libor Dušek & Klára Kalíšková & Daniel Münich, 2015. "The Poor or the Kids? Distributional Impacts of Taxes and Benefits Among Czech Households," Prague Economic Papers, Prague University of Economics and Business, vol. 2015(5), pages 602-617.
    2. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2007. "Welfare reform in European countries: a microsimulation analysis," Economic Journal, Royal Economic Society, vol. 117(516), pages 1-44, January.
    3. 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 of Labor Economics (IZA).
    4. 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.
    5. Bea Cantillon & Karel van den Bosch & Ive Marx, 2002. "The Puzzle of Egalitarianism: About the Relationships between Employment, Wage Inequality, Social Expenditures and Poverty," LIS Working papers 337, LIS Cross-National Data Center in Luxembourg.
    6. Immervoll, Herwig & O'Donoghue, Cathal, 2001. "Towards a multi purpose framework for tax benefit microsimulation," EUROMOD Working Papers EM2/01, EUROMOD at the Institute for Social and Economic Research.
    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 of Labor Economics (IZA).
    8. 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.
    9. Mike Brewer & Jonathan Shaw, 2018. "How Taxes and Welfare Benefits Affect Work Incentives," Fiscal Studies, John Wiley & Sons, vol. 39(1), pages 5-38, March.
    10. Burlacu, Irina S. & O'Donoghue, Cathal, 2012. "Differential Welfare State Impacts for Frontier Working Age Families," IZA Discussion Papers 6734, Institute of Labor Economics (IZA).
    11. Narazani, Edlira & Shima, Isilda, 2008. "Labour supply modelling in Italy when Minimum Income Scheme is an option," EUROMOD Working Papers EM6/08, EUROMOD at the Institute for Social and Economic Research.
    12. 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.

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    More about this item

    Keywords

    Net Replacement Rate; Unemployment Benefits; Work Incentives; European Union; Microsimulation;
    All these keywords.

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access

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