Vertical and Horizontal Redistribution: The Cases of Western and Eastern Europe

37 Pages Posted: 30 Nov 2018 Last revised: 4 Dec 2018

See all articles by Maurizio Bussolo

Maurizio Bussolo

World Bank - Chief Economist Office for Europe and Central Asia

Carla Krolage

University of Mannheim - Mannheim Research Institute for the Economics of Aging (MEA)

Mattia Makovec

World Bank

Andreas Peichl

Ludwig Maximilian University of Munich (LMU)

Marc Stockli

Ludwig Maximilian University of Munich (LMU)

Ivan Torre

World Bank

Christian Wittneben

ZEW – Leibniz Centre for European Economic Research

Date Written: November 29, 2018

Abstract

European countries have the world's most redistributive tax and transfer systems. Although they have been well equipped to deal with vertical inequality -- that is, fostering redistribution from the rich to the poor -- less is known about their performance in dealing with horizontal inequality, that is, in redistributing among socioeconomic groups. In a context where individuals may not only care about vertical redistribution, but also about the economic situation of the specific groups to which they belong, the horizontal dimension of redistribution becomes politically salient and can be a source of social tensions. This paper analyzes the performance of the 28 EU countries on redistribution across (i) age groups, (ii) occupational groups, and (iii) household types over 2007-2014 using counterfactual simulation techniques. The analysis finds a great degree of heterogeneity across countries: changes in the tax and transfer system have particularly hit the young and losers of occupational change in Eastern European countries, while households with greater economic security have benefited from these changes. The findings suggest that horizontal inequality is a dimension that policy makers should take into account when reforming tax and transfer systems.

Keywords: Poverty Reduction Strategies, Rural Labor Markets, Labor Markets, Public Sector Economics, Macro-Fiscal Policy, Economic Adjustment and Lending, Taxation & Subsidies, Public Finance Decentralization and Poverty Reduction, Inequality

Suggested Citation

Bussolo, Maurizio and Krolage, Carla and Makovec, Mattia and Peichl, Andreas and Stockli, Marc and Torre, Ivan and Wittneben, Christian, Vertical and Horizontal Redistribution: The Cases of Western and Eastern Europe (November 29, 2018). World Bank Policy Research Working Paper No. 8657. Available at SSRN: https://ssrn.com/abstract=3293402

Maurizio Bussolo (Contact Author)

World Bank - Chief Economist Office for Europe and Central Asia ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://https://blogs.worldbank.org/team/maurizio-bussolo

Carla Krolage

University of Mannheim - Mannheim Research Institute for the Economics of Aging (MEA) ( email )

D-68131 Mannheim
Germany

Mattia Makovec

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Andreas Peichl

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Marc Stockli

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Ivan Torre

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Christian Wittneben

ZEW – Leibniz Centre for European Economic Research ( email )

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

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