GINI DP 2: Are European Social Safety Nets Tight Enough? Coverage and adequacy of minimum income schemes in 14 EU countries

This paper explores and compares the effectiveness of Minimum Income (MI) schemes in protecting persons of working age from poverty in the European Union. Using the European microsimulation model EUROMOD we estimate indicators of coverage and adequacy of MI schemes in 14 EU countries. In terms of coverage, we find that in several countries a significant number of individuals are ineligible for MI even when they fall below a poverty line set at 40 per cent of median income. With respect to adequacy, we show that in certain countries a large fraction of those entitled to MI remain at very low levels of income even when MI benefit is added. Overall, our findings suggest that the clustering of MI schemes in Europe may be more complex than previous literature has hitherto allowed for.

The distributional effects of taxes and transfers under alternative income concepts: The importance of three 'I's

This paper investigates how the distribution of income changes when the standard definition of disposable income is replaced by an extended income concept which takes into account the three 'I's: indirect taxes, imputed rent, and in-kind benefits. Second, it assesses how sensitive the distributional effects of each tax-benefit instrument are to the choice of income concept. The analysis covers three European countries (Belgium, Greece and the UK) characterised by substantially different tax-benefit systems, giving a stronger base for generalising the results. The main findings are that the overall redistributive effect of the tax-benefit systems depends heavily on the income concept considered and the differences across countries are smaller when considering the extended income distribution. Moreover, the common use of a narrower income concept, such as the disposable income, can lead to the overestimation of the redistributive effect of the cash tax-benefit instruments (in relative terms), the extent of this varying across countries, due to the size and distribution of three 'I's and the adoption of the needs-adjusted equivalence scale

Inequalities within Couples: Market Incomes and the Role of Taxes and Benefits in Europe

In spite of there being few elements of tax or cash benefit systems in developed countries that are any longer explicitly gender-biased in a discriminatory sense, it is well recognised that they have significant gender effects. To the extent that women earn less than men on average under tax-benefit systems that are progressive, there is some redistribution from men to women overall. However, an aggregate perspective is insufficient for understanding how earning opportunities and public policies affect living arrangements at the family level in general and the circumstances of men and women in particular. Arguably, it is within the household that a gendered division of labour is most relevant. It is difficult to observe how income and other resources get allocated within households. We can, however, observe the incomes brought into the household and to what extent taxes and benefits mitigate (or indeed exacerbate) any inequality of income between men and women. We explore the effects of tax and benefit systems on differences in income and in incentives to earn income between men and women within couples in a selection of the member countries of the European Union (EU) using EUROMOD, the EU tax-benefit microsimulation model. This comparative perspective allows us to establish the relative effects of different policy regimes, given the underlying characteristics of each national population, using a consistent approach and set of incidence assumptions across countries.within-household inequality, tax-benefit systems, Europe, gender

The design of fiscal consolidation measures in the European Union: Distributional effects and implications for macroeconomic recovery

The financial and economic crisis which started in the late 2000s and the fiscal consolidation measures to counter the subsequent government budget deficits have an impact on household income distribution and macroeconomic recovery. We consider the austerity measures in relation to their distributional impact and the potential channels through which fiscal consolidation can affect economic growth. We find notable variation in the size, composition and effects of fiscal consolidation. Richer households tend to bear a greater burden in most countries but spending cuts are more likely to affect liquidity constrained households casting doubts over previous findings in the macro-economic literature about the effectiveness of such measures. This suggests the need to consider more disaggregated evidence to reach robust policy conclusions

Measuring the size and impact of public cash support for children in cross-national perspective

We suggest a new comprehensive measure of support given through tax-benefit systems to families with children. Using microsimulation techniques, this accounts for all provisions contingent on the presence of children, while usually only gross child/family benefits are considered. We use EUROMOD, the European Union tax-benefit microsimulation model, to quantify the support for children and analyse its impact on household incomes and child poverty for 19 countries. We find that the conventional approach underestimates on average the total amount of support for children by about one fifth. Furthermore, the differences between two measures vary considerably across countries and are, therefore, critical for cross-national comparisons

Measuring the size and impact of public cash support for children in cross-national perspective

The paper focuses on the support given through tax and benefit systems to families with children and addresses how the size and impact on the income distribution of this kind of support can be accurately measured. While such support is usually measured in rather narrow terms by adding up the benefits explicitly labelled as being for children, we adopt a more comprehensive approach whereby all tax-benefit instruments (or their components) which are contingent on the presence of children are accounted for. We use EUROMOD, the European Union tax-benefit microsimulation model, to quantify the support for children and analyse its impact on household incomes and child poverty for 19 countries. We find that the conventional approach underestimates on average the total amount of support for children by about one fifth. Furthermore, accounting for the net effect of the full range of components of cash support makes little difference fifth. Furthermore, accounting for the net effect of the full range of components of cash support makes little difference in some countries but a lot more in others. For cross-national comparisons it is therefore critical that a comprehensive measure is adopted

The financial well-being of older people in Europe and the redistributive effects of minimum pension schemes

This study analyses the financial well-being of elderly people across Europe. Using the European microsimulation model EUROMOD, which facilitates the identification of minimum pension schemes in a comparable way across countries, we show the extent to which these schemes serve to reduce the risk of poverty among elderly. The main findings show that there is a strong correlation between the resources allocated to the minimum pension schemes and the reduction in poverty risk among the elderly. Nevertheless, the financial well-being of older people depends crucially on the pension system as a whole. Countries with generous minimum pension schemes seem to allocate relatively fewer resources to other pillars of the pension system. On the one hand, they are more effective in reducing elderly poverty rates. On the other hand, they fail to ensure a level of financial well-being of older people in line with the overall population

Homeownership Investment and Tax Neutrality: A joint assessment of income and property taxes in Europe

Western countries' income tax systems exempt the return from investing in owner-occupied housing. Returns from other investments are instead taxed, thus distorting households' portfolio choices, although it is argued that housing property taxation might act as a counterbalance. Based on data drawn from the Statistics of Income and Living Conditions and the UK Family Resources Survey, and building on tax-benefit model EUROMOD, we provide novel evidence on the interplay of income and property taxation in budgetary, efficiency and equity terms in eight European countries. Results reveal that, even accounting for recurrent housing property taxation, a sizeable 'homeownership bias' i.e. a lighter average and marginal taxation for homeownership investment, is embedded in current tax systems, and displays heterogeneous distributional profiles across different countries. Housing property taxation represents only a partial correction towards neutrality

Spillover effects of innovation and entrepreneurial activity on income inequality in developing countries: A spatial panel approach

This paper investigated the spatial effects of innovation and entrepreneurial activity on income inequality of 64 middle-and-low-income countries and 25 high-income countries from 2000 to 2016. Spatial panel methods are used to address the issues of spatial dependency and spillover effects among neighboring countries. We find the following: (1) Evidence of spatial correlations in income inequality across countries. (2) A positive direct effect between innovation and inequality but a positive feedback from innovation. (3) The relationship between entrepreneurial activity and inequality is mixed. The relationship is positive if entrepreneurial activity is proxied by self-employment but negative if measured by entry rate. Both produced a negative feedback effect, which suggests that entrepreneurial activity is linked to rising inequality in developing countries. (4) A positive spillover effect from innovation and negative spillover effect from self-employment. We also investigated whether the linkages between innovation\u2013inequality and entrepreneurial activity\u2013inequality are subject to a country-level institutional quality. The findings suggest that the interaction terms have negative effects on income inequality. For policy implications, innovation sharing should be encouraged to reduce monopoly power that increases the tendency for wealth accumulation. Another possible solution to increase entrepreneurial activities while reducing inequality is for governments in developing countries to offer various schemes targeted at the poor, especially finance