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Preferences for redistribution and exposure to tax-benefit schemes in Europe

Francesco Andreoli () and Javier Olivera ()

No 642020, Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: This paper provides evidence that attitudes towards redistribution are associated with the extent of generosity of the redistributive context experienced by the individual, as measured by the likelihood of receiving positive benefit transfers net of fiscal contribution. We estimate reduced form tax-benefit equations with the EU Statistics on Income and Living Conditions (EU-SILC), and match the implied parameters to the respondents of the European Social Survey (ESS) on the basis of their characteristics. The period of analysis is 2008-2016. For identification, we exploit exogenous cross-country and time variation in tax rules and market income to disentangle implications of exposure to tax-benefit rules on preferences for redistribution from the effects of changes in income inequality. We find that exposure to positive net benefits increases demand for redistribution by about 1.2%, the effect being robust across a variety of specifications. The signs of the effects are consistent with those predicted by a simple model where exposure to redistribution affects expectations for consumption, but risk averse individuals discount this effect by the nature of income shocks they are exposed to in the market.

Keywords: Income Inequality; Preferences for redistribution; ESS; EU-SILC; tax-benefit system (search for similar items in EconPapers)
Pages: 34
Date: 2019
New Economics Papers: this item is included in nep-eur
Note: paper number DPS19.09
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Published in FEB Research Report Department of Economics DPS19.09

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Journal Article: Preferences for redistribution and exposure to tax-benefit schemes in Europe (2020) Downloads
Working Paper: Preferences for redistribution and exposure to tax-benefit schemes in Europe (2019) Downloads
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