The Role of Tax-Benefit Systems in Reducing Income Instability in EU countries

Luis Ayala

No JRC139510, JRC Research Reports from Joint Research Centre

Abstract: European tax-benefit systems play a crucial role in providing social insurance and mitigating economic risks, thereby reducing income inequality and fostering social cohesion. They also play a vital role in providing resilience during economic shocks. Despite their stabilizing impact, these systems face the challenge of addressing new social transitions, such as changes in economic activity locations and labour market transformations. This report aims to summarize some of these issues, paying special attention to the problems of income instability. We find that the tax-benefit systems in EU countries play a crucial role in stabilizing incomes during economic downturns, although their effectiveness varies across countries. Strengthening these systems is also necessary to support middle-income groups and enhance inter- and intragenerational income mobility. Tax benefit systems generally increase income mobility, but their impact has declined in many EU countries since the early 21st century, indicating a need for stronger and more consistent policy interventions.

Date: 2024-11
New Economics Papers: this item is included in nep-eec, nep-pbe and nep-pub
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