The Redistributive Effects of Tax Benefit Systems in the Enlarged EU

Clemens Fuest (), Judith Niehues () and Andreas Peichl ()
Additional contact information
Clemens Fuest: University of Oxford
Judith Niehues: University of Cologne

No 4520, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: How do different components of the tax and transfer systems affect disposable income inequality? This paper explores the redistributive effects of different tax benefit instruments in the enlarged EU based on two approaches. Inequality analysis based on the standard approach suggests that benefits are the most important factor reducing inequality in the majority of countries. The factor source decomposition approach, however, suggests that benefits play a negligible role and sometimes even contribute slightly positive to inequality. On the contrary, here taxes and social contributions are by far the most important contributors to income inequality reduction. We explain these partly contradictory results with the different normative focus of the two approaches and show that benefits have other aims than redistribution. Finally, our country clustering shows that the Eastern European countries do not form a distinguished group. The Central Eastern European countries group together with the Continental European countries and the Baltic States show similarities with some Southern European countries.

Keywords: inequality; redistribution; decomposition; tax benefit systems (search for similar items in EconPapers)
JEL-codes: D31 D60 H20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-pub and nep-tra
Date: 2009-10
View list of references

Downloads: (external link)
http://ftp.iza.org/dp4520.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:iza:izadps:dp4520

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute for the Study of Labor (IZA)
Address: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Contact information at EDIRC.
Series data maintained by Mark Fallak ().