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The effect of tax-benefit changes on the income distribution in EU countries since the beginning of the economic crisis

Paola De Agostini (), Alari Paulus, Holly Sutherland and Iva Tasseva

No EM9/14, EUROMOD Working Papers from EUROMOD at the Institute for Social and Economic Research

Abstract: We compare the distributional effects of policy changes introduced in the period 2008-2013 in twelve EU countries using the EU microsimulation model EUROMOD. The countries, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Latvia, Lithuania, Portugal, Romania and the UK, chose different policy mixes to achieve varying degrees of fiscal consolidation or expansion. We find that comparisons of the size and distributional effects of policy changes over time are sensitive to the counterfactual assumption that is adopted in adjusting 2008 policies for changes in prices and incomes over the period. Nevertheless, it is clear that the direct tax, public pension and cash benefit changes had broadly progressive effects across the pre-policy change income distributions, except in Germany, Estonia and Lithuania. Including increases in VAT alters the comparative picture by making the policy packages appear more regressive, to varying extents. The paper also explores the implications of the policy changes for measures of risk of poverty and examines the incidence of the changes by age.

Date: 2014-05-02
New Economics Papers: this item is included in nep-pbe and nep-pub
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