Automatic Stabilizers, Economic Crisis and Income Distribution in Europe

31 Pages Posted: 10 May 2010

See all articles by Mathias Dolls

Mathias Dolls

University of Cologne - Faculty of Management, Economics and Social Sciences; IZA

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich; Ludwig-Maximilians-University, Munich; Center for Economic Studies (CES)

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research; University of Mannheim - School of Economics (VWL); IZA Institute of Labor Economics; University of Essex - Institute for Social and Economic Research (ISER)

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.

Keywords: automatic stabilization, crisis, inequality, redistribution

JEL Classification: E32, E63, H2, H31

Suggested Citation

Dolls, Mathias and Fuest, Clemens and Peichl, Andreas, Automatic Stabilizers, Economic Crisis and Income Distribution in Europe. IZA Discussion Paper No. 4917. Available at SSRN: https://ssrn.com/abstract=1603366

Mathias Dolls (Contact Author)

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Richard-Strauss-Str. 2
Cologne, D-50923
Germany

IZA

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich

Poschinger Str. 5
Munich, DE 81679
Germany
++89-9224-1430 (Phone)

Ludwig-Maximilians-University, Munich ( email )

Schackstrasse 4 / II
Munich, DE 80539
Germany

Center for Economic Studies (CES) ( email )

Schackstr. 4
Munich, DE 80539
Germany
++89 2180-2748 (Phone)
++89 2180-17845 (Fax)

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim - School of Economics (VWL) ( email )

Mannheim 68131
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

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