The cushioning effect of fiscal policy in the EU during the COVID-19 pandemic

Michael Christl, Silvia De Poli, Francesco Figari (), Tine Hufkens, Chrysa Leventi, Andrea Papini and Alberto Tumino

No 2021-02, JRC Working Papers on Taxation & Structural Reforms from Joint Research Centre

Abstract: This paper analyses the extent to which the tax-benefit systems of the EU Member States have protected household incomes during the COVID-19 pandemic. We makes use of EUROMOD, the EU tax-benefit microsimulation model based on 2018 EU-SILC data. Detailed aggregate labour market statistics combined with a novel approach to simulate transitions from work into monetary compensation schemes (short-time work schemes, as well as compensation schemes for self-employed) and into unemployment allows us to replicate the labour market conditions during the COVID-19 crisis in 2020 in the underlying EU-SILC data. Our analysis highlights that most of the countries analysed experienced a significant drop in market incomes, with poorer households hit the hardest. However, our findings also suggest that the tax-benefit systems of the EU Member States have been able to absorb a significant share of the COVID-19 shock, offsetting – or alleviating – its regressive nature on market incomes. Monetary compensation schemes implemented by EU Member States played a key role in cushioning against the fall in household income during the crisis.

Keywords: COVID-19; EUROMOD; microsimulation; EU; automatic stabilisers; compensation schemes (search for similar items in EconPapers)
JEL-codes: D31 E24 H24 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-eur and nep-mac
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:ipt:taxref:202102

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