Alternative Tax-Benefit Strategies to Support Children in the European Union. Recent Reforms in Austria, Spain and the UK

We compare three EU countries that have recently experienced substantial but very different reforms of their family support systems: Austria, Spain and the UK. The structure of these systems is different: Austria emphases universal benefits, Spain tax concessions and the UK means-tested benefits. First the paper compares the distributional implications of these three approaches. The recent reforms have reinforced existing structures while increasing the amount of spending for children. The second step is to ask: What would have happened if these countries had transformed the architecture of their systems in either of the other two directions? We use EUROMOD, the European tax-benefit microsimulation model that is designed for making cross-country comparisons and answering “what if” questions such as these. We find that the three factors that can be distinguished – the level of spending, its structure, and the way it impacts in a national context – are all important to varying degrees.Children, European Union, Policy Reform, Microsimulation

Social indicators and other income statistics using EUROMOD: An assessment of the 2001 baseline and changes 1998 - 2001

This paper reports an exercise to validate EUROMOD output for 2001 by comparing income statistics calculated from the baseline micro-output with comparable statistics from the European Community Household Panel (ECHP). It focuses particularly on some of the income-based common “Laeken” social indicators. It also compares EUROMOD estimates of changes in these indicators between 1998 and 2001 with similar estimates based on ECHP. The values of many of the indicators – and changes to the indicators – calculated using EUROMOD are close to those shown by the ECHP. Where there are discrepancies these can usually be explained by known differences in the methods or underlying data. Users of EUROMOD should be aware of remaining unavoidable sources of non-comparability across countries, as well as the nature of the simulation process. Nevertheless they can be confident that the baseline provides a good starting point for the analysis of the effects of policy changes on indicators

Effect of changes in tax/benefit policies in Austria 1998 - 2005

The aim of this paper is to evaluate whether policy reforms in Austria between 1998 and 2005 were successful in meeting redistributive objectives and in reducing poverty. For the analysis we use the tax/benefit micro-simulation model EUROMOD. Due to the sequence of reforms and the use of two datasets, the period under review is split into two parts: 1998 to 2003 and 2003 to 2005. Important changes in the first period were the tax reform 2000, the introduction of the universal childcare benefit (“Kinderbetreuungsgeld”) as well as increases in family-targeted benefits and tax reliefs. We find that the policy reforms were in general clearly progressive and family-friendly. However, as with elderly people, the situation did not improve for all population groups at risk of poverty. In the period from 2003 to 2005 the tax reform 2004/05 was introduced and contributions to health insurance were raised. We find that the measures had no significant impact on poverty and income distribution; however, in total they increased the disposable income for almost all population groups. The analysis is completed by the assessment of the redistributive impact of two hypothetical policy changes in favour of lower income groups, namely the continuous introduction of employees’ social security contributions above the lower threshold for contributions (“Geringfügigkeitsgrenze”) and the yearly indexation of family benefits

Effects of Changes in Tax/Benefit Policies in Austria 2003-2005

The aim of this paper is to evaluate whether policy reforms in Austria between 2003 and 2005 were successful in meeting redistributive objectives and in reducing poverty. The authors use the tax/benefit micro-simulation model EUROMOD for this analysis. In the period under review the 2004-2005 tax reform was introduced and contributions to health insurance were raised. On the benefit side no major changes took place, the main family benefits were not even indexed to inflation. The authors find that the measures had no significant impact on poverty and income distribution. However, in total they increased the disposable income of almost all groups of the population

Lessons from building and using EUROMOD

By the mid 1990s the potential and usefulness of microsimulation models for researching tax benefit systems had found widespread acceptance. Nevertheless models were not widely available for independent or academic research in all countries of the European Union (EU). Even more important, carrying out consistent comparative tax-benefit microsimulation analysis was still an apparently impossible task. The time seemed ready for a European-Union-wide tax-benefit microsimulation model. This paper is devoted to explaining the reasons for building EUROMOD, its added value compared to existing models, the trade-offs faced by its builders and lessons that have been learnt from developing such an integrated model. Moreover, it aims to provide an insight into the wide range of possible applications of EUROMOD, underlined by summarising some indicative findings of studies, which have used the model

The impact of tax and transfer systems on children in the European Union

The objective of this paper is to analyze the impact of fiscal policy on the economic resources available to children, and on the child poverty rate. A static microsimulation model specifically designed for the purposes of comparative fiscal analysis in the European Union, EUROMOD, is used to study the age incidence of government taxes and transfers in 2001 in 15 EU countries. Three related questions are addressed. First, what priorities are currently embodied in government budgets across age groups, and in particular to what degree do cash transfer and tax systems benefit children relative to older groups? Second, what fractions of the needs of children are supported by elements of the tax and transfer systems directed explicitly to them? And third, what impact do measures of public resources for children have on child poverty rates

Alternative tax-benefit strategies to support children in the European Union

We compare three EU countries that have recently experienced substantial but very different reforms of their systems to support families with children: Austria, Spain and the United Kingdom. The structure of these systems is different: Austria gives emphasis to universal benefits, Spain to tax concessions and the United Kingdom to means-tested benefits. As a first step the paper compares the distributional implications of these three approaches. The recent reforms have reinforced these existing structures while increasing the amount of public resources directed towards children. The second step is to address the question whether the chosen strategies are the best for each country. What would have happened if instead of reinforcing the existing types of policies these countries had completely transformed the architecture of their systems in either of the other two directions? We use EUROMOD, the European tax-benefit microsimulation model that is designed for making cross-country comparisons and answering “what if” questions such as these to explore the effects of budget-neutral alternatives on the position of children in the income distribution as a whole, the proportions gaining and losing and the effects on child poverty. The three factors that can be distinguished – the level of spending, its structure, and the way it impacts in a particular national context – are all important to varying degrees

A basic income for Europe's children?

This paper explores the prospects for a guaranteed income for every child in the European Union and its potential effects on child poverty, taking as one starting point the ideas set out in Atkinson (2005). It examines the extent to which existing levels of financial support for children through national taxes and benefits fall short of a series of illustrative minimum levels of income corresponding to proportions of median income. It estimates the cost of bringing the amount of support up to these levels for all children as well as the corresponding impacts on income poverty among EU children. From this the cost in each country of providing basic incomes for children is estimated such that potential EU child poverty reduction targets are met. This cost could be met at national level or, alternatively, at EU level and we investigate the effect of financing the guaranteed child income using a European flat tax (Atkinson, 1995). The analysis uses EUROMOD, the European tax-benefit microsimulation model and illustrates the implications of the choices that must be made when designing such a scheme for the extent of redistribution between countries and towards children