Recent Reforms of the Tax and Benefit Systems in the Framework of Flexicurity

European Commission - Directorate General for Economic and Financial Affairs Occasional Paper No. 43

Posted: 9 Jun 2009

See all articles by Giuseppe Carone

Giuseppe Carone

European Commission - DG ECFIN

Fabiana Pierini

European Union - European Commission

Klara Stovicek

affiliation not provided to SSRN

Etienne Sail

affiliation not provided to SSRN

Date Written: June 8, 2009

Abstract

This paper provides an analysis of recent reforms of tax-benefit systems and a preliminary assessment of their impact on financial incentives to work and on labour supply. Many Member States have introduced policies to “make work pay” and have targeted low-wage workers with the aim of increasing their take-home pay. The labour market improvements observed over recent years are a sign that structural reforms have started to pay off. The reduction of disincentives to work and to hire, especially for the low-skilled, embedded in tax and benefit systems, a greater link with activation policies and a stronger reliance on preventive and targeted active labour market policies (ALMPs), and widespread wage moderation are all factors that have contributed to the structural improvement in the functioning of labour markets. Yet, despite these improvements, in view of the ageing of the population and rapid technological change, more progress is needed to further increase and maintain high levels of employment and participation rates, especially among female and older workers, and to reduce structural unemployment. Member States should continue along the line of reforms followed so far. The Commission has stressed the importance of a comprehensive strategy of labour market reforms (flexicurity) that shift the focus from protection on the job to insurance in the market. These reforms would enable workers to move more smoothly from declining to expanding activities, thus easing tensions in the adjustment process, while ensuring adequate income support and responding to potential anxieties among European citizens.

Keywords: Employment, Tax and benefit policies, Unemployment insurance, Labour supply, Flexicurity

JEL Classification: J01, J08, J20, J65, E24, J31, J32, H20, H53

Suggested Citation

Carone, Giuseppe and Pierini, Fabiana and Stovicek, Klara and Sail, Etienne, Recent Reforms of the Tax and Benefit Systems in the Framework of Flexicurity (June 8, 2009). European Commission - Directorate General for Economic and Financial Affairs Occasional Paper No. 43, Available at SSRN: https://ssrn.com/abstract=1416154 or http://dx.doi.org/10.2139/ssrn.1416154

Giuseppe Carone (Contact Author)

European Commission - DG ECFIN ( email )

BU-1 04/175
Brussels, Bruxelles B-1049
Belgium

Fabiana Pierini

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Klara Stovicek

affiliation not provided to SSRN ( email )

Etienne Sail

affiliation not provided to SSRN ( email )

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