Household Incomes and Redistribution in the European Union: Quantifying the Equalising Properties of Taxes and Benefits

27 Pages Posted: 7 Nov 2005

See all articles by Herwig Immervoll

Herwig Immervoll

World Bank, Europe and Central Asia; Organization for Economic Co-Operation and Development (OECD) - Social Policy Division; IZA Institute of Labor Economics; ISER Institute for Social and Economic Research; University of Canberra - National Centre for Social and Economic Modelling (NATSEM); United Nations - European Centre for Social Welfare Policy and Research

Horacio Levy

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

Christine Lietz

University of Cambridge

Daniela Mantovani

University of Cambridge - Department of Applied Economics; Prometeia Calcolo

Cathal O'Donoghue

National University of Ireland, Galway (NUIG); Rural Economic Research Centre, Teagasc; IZA Institute of Labor Economics

Holly Sutherland

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

Gerlinde Verbist

University of Antwerp

Date Written: October 2005

Abstract

The systems of direct taxes and cash benefits in the Member States of the European Union vary considerably in size and structure. We explore their direct impacts on cross-sectional income inequality (termed redistributive effect for the purpose of this paper) using EUROMOD, a tax-benefit microsimulation model for the European Union. This relies on harmonised household micro-data representative of each national population together with simulations of entitlements to cash benefits and liabilities for taxes and social contributions. It allows us to draw a more comprehensive - and comparable - picture of the combined effects of transfers and taxes than is usually possible. We decompose the redistributive effect of tax-benefit systems to assess and compare the effectiveness of individual policies at reducing income disparities. The following categories of benefits and taxes are considered both individually and in combination: income taxes, social contributions, cash benefits designed to target the poor or redistribute inter-personally (through means-testing) as well as cash benefits intended to redistribute intra-personally across the lifecycle (through social insurance or contingency-based entitlement). We derive results for the 15 old members of the European Union and present them for each country separately as well as for the EU-15 as a whole.

Keywords: income inequality, redistribution, microsimulation, European Union

JEL Classification: C81, D31, H22, H55

Suggested Citation

Immervoll, Herwig and Levy, Horacio and Lietz, Christine and Mantovani, Daniela and O'Donoghue, Cathal and Sutherland, Holly and Verbist, Gerlinde, Household Incomes and Redistribution in the European Union: Quantifying the Equalising Properties of Taxes and Benefits (October 2005). IZA Discussion Paper No. 1824, Available at SSRN: https://ssrn.com/abstract=842044

Herwig Immervoll (Contact Author)

World Bank, Europe and Central Asia ( email )

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University of Canberra - National Centre for Social and Economic Modelling (NATSEM) ( email )

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United Nations - European Centre for Social Welfare Policy and Research ( email )

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Horacio Levy

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

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United Kingdom

HOME PAGE: http://www.iser.essex.ac.uk/staff/staff-details.php?personID=640

Christine Lietz

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

Daniela Mantovani

University of Cambridge - Department of Applied Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DE
United Kingdom

Prometeia Calcolo

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I-40122 Bologna
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Cathal O'Donoghue

National University of Ireland, Galway (NUIG) ( email )

University Road
Galway, Co. Kildare
Ireland

Rural Economic Research Centre, Teagasc

Oak Park
Athenry
Carlow
Ireland

IZA Institute of Labor Economics

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

Holly Sutherland

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

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Gerlinde Verbist

University of Antwerp ( email )

Prinsstraat 13
Antwerp, Antwerp 2000
Belgium

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