Effects of flat tax reforms in Western Europe on equity and efficiency

The flat income tax has become increasingly popular recently, yet its implementation is limited to Eastern Europe. We analyse the distributional and e? ciency effects of flat tax scenarios for Western European countries. Our simulations show that flat tax rates required to attain revenue neutrality with existing basic allowances improve labour supply incentives. However, they result in higher inequality and polarisation. Flat rates necessary to keep the inequality levels unchanged allow for some scope for flat taxes to increase both equity and e? ciency. Our analysis suggests that Mediterranean countries are more likely to benefit from flat taxes. --Flat tax reform,income distribution,work incentives,microsimulation

Effects of Flat Tax Reforms in Western Europe on Income Distribution and Work Incentives

The flat income tax has become increasingly popular recently, yet its implementation is limited to Eastern Europe. We analyse the distributional and efficiency effects of flat tax scenarios for Western European countries. Our simulations show that flat tax rates required to attain revenue neutrality with existing basic allowances improve labour supply incentives. However, they result in higher inequality and polarisation. Flat rates necessary to keep the inequality levels unchanged allow for some scope for flat taxes to increase both equity and efficiency. Our analysis suggests that Mediterranean countries are more likely to benefit from flat taxes.flat tax reform, income distribution, work incentives, microsimulation

The Distributional Impact of In Kind Public Benefits in European Countries

International comparisons of inequality based on measures of disposable income may not be valid if the size and incidence of publicly-provided in kind benefits differ across the countries considered. The benefits that are financed by taxation in one country may need to be purchased out of disposable income in another. We estimate the size and incidence of in kind or "non cash" benefits from public housing subsidies, education and health care for five European countries using comparable methods and data. Inequality in the augmented income measure is dramatically lower than in disposable income, with the effects of the three components varying in importance across countries. Adapting equivalence scales to take proper account of differences in needs for health care and education across population members reduces the scale of the effect, but does not eliminate it.inequality, in kind transfers, cross-national comparisons

Europe Through the Crisis: Discretionary Policy Changes and Automatic Stabilizers

Tax‐benefit policies affect changes in household incomes through two main channels: discretionary policy changes and automatic stabilizers. We study their role in the EU countries in 2007–14 using an extended decomposition approach. Our results show that the two policy actions often reduced rather than increased inequality of net incomes, and so helped offset the inequality‐increasing impact of growing disparities in gross market incomes. While inequality reductions were achieved mainly through benefits using both routes, policy changes to and the automatic stabilization response of taxes and contributions raised inequality in some countries and lowered it in others

The effect of COVID-19 and the wage compensation measure on income-related gender disparities

Many countries implemented wage compensation measures during the COVID-19 crisis to alleviate income losses and avoid employment reductions. We focus on the gender dimension of incomes in Estonia, which has been grappling with the highest gender wage gap in Europe, and investigate whether the crisis and related wage compensation may have worsened existing gender imbalances. Using detailed administrative datasets and EUROMOD microsimulation model, we show that the COVID-19 crisis had a significant negative effect on employment income for both men and women, but the wage compensation implemented in 2020 appeared to cushion these effects. Income losses were slightly higher for men, but the cushioning effect of the compensation was higher for women. Overall, income-related gender disparities did not change significantly during the crisis. Still, the wage compensation measure has contributed to preventing income-related gender disparities increasing further, particularly in the hotels and restaurants sector and wholesale and retail trade sector

A lost decade?: decomposing the effect of 2001-11 tax-benefit policy changes on the income distribution in EU countries

This paper examines the extent to which tax and benefit policy changes introduced in the period 2001-11 had a poverty- or inequality-reducing effect. We assess whether the period was indeed a “missed opportunity” for policy changes to make a difference to poverty reduction since the Lisbon Treaty, given the general lack of improvement shown by poverty indicators. Our analysis uses the tax-benefit model EUROMOD and covers seven diverse EU countries: Belgium, Bulgaria, Estonia, Greece, Hungary, Italy and the United Kingdom. We apply the Bargain and Callan (2010) decomposition approach, extending it by separating the effect due to structural policy changes and the indexation effect. We find that the latter was typically more effective in alleviating poverty and inequality than changes to the structure of policies. In fact, most of the structural changes that governments introduced, especially in the 2007-11 crisis-onset period, had poverty and inequality-increasing effects. We find considerable variation between countries in how different policy instruments have been adjusted, and in the effects of these adjustments by income, by age and by household composition, showing the importance of understanding them together, rather than discussing just some in isolation