Research Note - Tax-Benefit Microsimulation Models In Eastern Europe

book reviewNew member States, European Union, tax-benefit, features

Tasting Freedom: Happiness, religion and economic transition

Economic transition lowered happiness on average, but did not affect all equally. This paper uses Hungarian survey data to study the impact of religion and economic transition on happiness. Religious involvement contributes positively to individuals' self-reported well-being. Controlling for personal characteristics of the respondents, money is a less important source of happiness for the religious. The impact of economic transition has varied greatly across different groups. The main winners from increasing economic freedom were the entrepreneurs. The religious were little affected by the changes. This implies that greater ideological freedom, measured by a greater social role of churches, may not influence happiness per se.Happiness, economic transition, religion, entrepreneurs

Happiness over the life cycle: exploring age-specific preferences

Existing evidence suggests a U-shaped relationship between age and life satisfaction, when controlling for income and education and other personal characteristics. On the other hand, there is no clear pattern between old age and happiness without the use of controls. Thus, it is not ageing as such, which results declining happiness, but rather the circumstances which are associated with ageing. Which of these circumstances could be averted? Are the preferences of the elderly are similar to others? The paper aims to explore these issues, using the European Social Survey. The results imply that the varying level of life satisfaction during the life cycle may be explained partly by changing preferences (by the decreasing importance of work, the increasing importance of religion, and the declining disutility of being single), and partly by changing circumstances. While changing preferences seem to increase well-being, changing circumstances seem to decrease it. Exceptions are the few positive changes in circumstances, which are likely to contribute to higher well-being, include increasing religiosity and relatively low pensioners’ poverty across the 21 European countries examined here. Old days thus are happy above all due to changing priorities in life.Life Satisfaction, Age, Preferences

Knowing what is good for you. Empirical analysis of personal preferences and the 'objective good'

This paper aims to test empirically if certain frequently used measures of well-being, which are regarded as valuable properties of human life, are actually desired by people. In other words, it investigates whether the “expert judgments” in social science overlap with social consensus on what the “good life” is. The starting hypothesis is that there is an overlap between these two in the case of basic needs. For the analysis, individuals’ self-reported life satisfaction is used as a proxy for “utility”, based on survey data, which includes about 30 000 individuals from 21 different European countries. The results indicate that the commonly used measures of well-being - labour market situation, health, housing conditions and social relations - significantly influence people’s satisfaction, ceteris paribus. Next, the stability of preferences is tested using Hungarian data from the 1990s. The results indicate that there was only very limited change in the relationship between life satisfaction and basic measures of well-being despite the landslide of societal and economic transformation.quality of life, capabilities, happiness, basic needs, economic transition

Knowing what is good for you: Empirical analysis of personal preferences and the 'objective good'

This paper aims to test empirically if certain frequently used measures of well-being, which are regarded as valuable properties of human life, are actually desired by people. In other words, it investigates whether the "expert judgments" in social science overlap with social consensus on what the "good life" is. The starting hypothesis is that there is an overlap between these two in the case of basic needs. For the analysis, individuals' self-reported life satisfaction is used as a proxy for "utility", based on survey data, which includes about 30 000 individuals from 21 different European countries. The results indicate that the commonly used measures of well-being - labour market situation, health, housing conditions and social relations - significantly influence people's satisfaction, ceteris paribus. Next, the stability of preferences is tested using Hungarian data from the 1990s. The results indicate that there was only very limited change in the relationship between life satisfaction and basic measures of well-being despite the landslide of societal and economic transformation.quality of life, capabilities, happiness, basic needs, economic transition

Knowing what is good for you. Empirical analysis of personal preferences and the “objective good”

The paper argues that there is a cherishable overlap between “objective good” and people’s preferences in measures of well-being. Firstly, using recent survey data from twenty European countries I analyse the determinants of individual’s “experienced utility”. The proxy for utility is overall life satisfaction. The results indicate that various measures of well-being which are normally used for assessing people’s quality of life do indeed significantly influence people’s utility. The estimated micro-econometric life satisfaction equations suggest that an individual’s labour market situation, housing conditions and social relations significantly contribute to his overall life satisfaction, over and above the level of his income. The findings also imply that the use of non-income measures in standard analyses of well-being is justified on the grounds that these measures do have intrinsic value for the people over and above their incomes. In the second part of the paper, the stability of the relationship is tested using survey data from Hungary from the 1990s. The results show that there was only very limited change in this relationship despite the landslide of societal and economic transformation. Entrepreneurs have become more satisfied, but there is no change in the relationship of income and life satisfaction, ceteris paribus. Overall, thus the relationship between basic measures of objective well-being and people’s preferences seems to be stable.

Deliver us from Evil: Religion as insurance

This paper focusses on the insurance role of religion in buffering the well-being impact of stressful life events, and the ensuing economic and social implications. Using two large-scale European data sets, we show that the religious enjoy higher levels of life satisfaction, and that religion does insure against some adverse life events. All denominations suffer less psychological harm from unemployment than do the non-religious; equally both Catholics and Protestants are less hurt by marital separation. However, while Protestants are protected against divorce, Catholics are punished for it. These results do not seem to come about from the endogeneity of religion. These patterns in subjective well-being correspond to data on both attitudes (the religious are both anti-divorce and anti-job creation for the unemployed) and behaviour (the religious unemployed are less likely to be actively looking for work). In panel data, as implied by insurance, the religious have less variation in life satisfaction. Last, we suggest that religion s insurance role might be reflected in support for different economic and social systems: consistent with this, unemployment replacement rates across Europe are lower in more religious countries.Life Satisfaction, Religion, Unemployment, Marriage, Divorce, Insurance.

The distributional implications of income underreporting in Hungary

The paper estimates the distributional implications of income tax evasion in Hungary based on a random sample of administrative tax records of 230 thousand individuals. Gross incomes in the administrative tax records are compared with those in a nationally representative household budget survey, assuming that tax-evaders are more likely to report their true incomes in an anonymous interview. Our estimates show that the average rate of underreporting is 11%, which conceals large differences between self-employed (who hide the majority of their incomes) and employees. The estimates are likely to be lower bound, due to measurement error in the income survey. These rates are then used in EUROMOD, a tax-benefit microsimulation model to calculate the fiscal and distributional implications of underreporting, while taking account of all major direct taxes and cash benefits and also their interactions. Tax evasion reduces fiscal revenues from personal income taxes by about 19%. While the occurrence of poverty is not affected, income inequality becomes significantly higher (the Gini coefficient increases by 7%), suggesting that high earners tend to evade proportionately more. Finally, we find that tax evasion largely reduces the progressivity of the tax system.tax policy, tax evasion, income distribution, self-employed

ASSESSMENT OF INCOME DISTRIBUTION AND A HYPOTHETICAL FLAT TAX REFORM IN HUNGARY

The paper presents evidence on the effects of taxes and benefits on household incomes in Hungary referring to the 2006 system and a hypothetical flat tax reform. For this, a microsimulation model is used, which is based on a matched sample of an income and a consumption survey and administrative tax records. The Hungarian budget receives more revenues from VAT than from PIT. This has major implications on equity, as while PIT is progressive, VAT is regressive, imposing a higher tax burden on low-income households. We highlight the importance of tax allowances. The absolute amount of total tax allowances tends to increase with income, and the share of allowances within total incomes is around 5-7% in all income groups, except the top fifth, where it declines. Targeting is thus inadequate, and it is especially so in case of child support. Family tax allowance reaches the bottom decile only to a limited extent. This is in sharp contrast with the universal child benefit, which is well targeted to the poorest. The second part explores the likely impact of the introduction of a flat tax, where VAT and PIT rates are set at 20%, and a tax free bracket for low incomes is kept. We show that a budget neutral solution would have a largely regressive effect, where 70% of the population would lose, with a minority on the top of the distribution gaining.Tax-benefit microsimulation, redistribution, flat tax reform, Hungary

Let us pray: religious interactions in life satisfaction

We use recent pooled survey data on 90 000 individuals in 26 European countries to examine religious spillover effects on life satisfaction. Own religious behaviour is positively correlated with individual life satisfaction. More unusually, average religiosity in the region also has a positive impact: people are more satisfied in more religious regions. This spillover holds both for those who are religious and for those who are not. The flipside of the coin is that a greater proportion of "atheists" (those who say they do not currently belong to any religious denomination) has negative spillover effects, for the religious and atheists alike. We last show that both Protestants and Catholics like to live in regions where their own religion is dominant, while Protestants are also more satisfied when Catholics dominate. The generic positive spillover effect of others' religion is not explained by social capital, crime, or trust.life satisfaction ; religion ; externalities