GINI DP 23: Automatic Stabilizers, Economic Crisis and Income Distribution in Europe

Mathias Dolls, Clemens Fuest and Andreas Peichl

GINI Discussion Papers from AIAS, Amsterdam Institute for Advanced Labour Studies

Abstract: 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.

Date: 2011-12
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