Francesco Figari

Economic downturn and stress testing European welfare systems

As unemployment rises across the European Union (EU), it is important to understand the extent to which the incomes of the new unemployed are protected by tax–benefit systems and to assess the cost pressures on the social protection systems of this increase in unemployment. This chapter uses the EU tax–benefit model EUROMOD to explore these issues, comparing effects in five EU countries. It provides evidence on the differing degrees of resilience of the household incomes of the newly unemployed due to the variations in the protection offered by the tax–benefit systems, according to whether unemployment benefit is payable, the household situation of the unemployed person and across countries.

Measuring the Size and Impact of Public Cash Support for Children in Cross-National Perspective

The authors 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. The authors use EUROMOD, the European Union tax-benefit microsimulation model, to quantify the support for children and analyze its impact on household incomes and child poverty for 19 countries. The authors 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.

Microsimulation and Policy Analysis

We provide an overview of microsimulation approaches to assess the effects of policy on the income distribution. We focus mainly on the role of tax-benefit policies and review the concept of microsimulation and how it contributes to the analysis of the income distribution in general and policy evaluation in particular. We consider the main challenges and limitations and discuss directions for future developments.

Welfare Compensation for Unemployment in the Great Recession

This paper analyzes the extent to which tax-benefit systems provide an automatic stabilization of income for those who became unemployed at the onset of the Great Recession. The focus of the analysis is on the compensation for earnings lost due to unemployment which is channeled through the welfare systems to this group of people who are clearly vulnerable to the recessions adverse effects. In order to assess the impact of unemployment on household income, counterfactual scenarios are simulated by using EUROMOD, the EU-wide microsimulation model, integrated with information from the EU-LFS data. This paper provides evidence on the differing degrees of relative and absolute resilience of the household incomes of the new unemployed. These arise from the variations in the protection offered by the national tax-benefit systems and from the personal and household circumstances of those most recently at risk of unemployment in the countries considered.

Can in-work benefits improve social inclusion in the southern European countries?

This paper analyses the effects of implementing a family-based and an individual in-work benefit in the southern European countries using EUROMOD, the EU-wide tax-benefit microsimulation model. In-work benefits are means-tested cash transfers given to individuals, through the tax system, conditional on their employment status. They are intended to enhance the incentives to accept work and redistribute resources to low income groups. The family-based in-work benefits seem to be more redistributive, in particular in Italy and Portugal, but the presence of extended families does not enable such policies to be well targeted on the very poorest, especially in Spain. Individual policies lead to better incentives to work than family-based in-work benefits, in particular for Spanish and Italian women in couples whose labour market participation is far below the European average.

The redistributive effect and progressivity of taxes revisited : an international comparison across the European Union

This article examines inequalities in highbrow cultural participation in 18 countries. It tests whether inequalities in such participation occur because of the status conferred by consumption of high culture, or whether they are more a result of differences in cognitive competencies. Inequalities are represented by respondents’ education. By filtering out the effects of cognitive abilities, measured by a person’s literacy skills, we obtain a net measure of the status motives for cultural behavior. Our analysis demonstrates that the net (i.e., status) effect of education on cultural participation is reduced in societies with greater educational expansion and intergenerational educational mobility. This is in line with the status explanation, which holds that exclusionary boundaries between educational groups become less rigid when there are more high-educated individuals in a society and when these originate more frequently from lower social backgrounds. In contrast, the relation between a person’s cognitive skills and their cultural participation is unaffected by distributional variation in education, as the cognitive theory predicts.

The Financial Well-Being of Elderly 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 gather together new empirical findings on the redistributive effects of the minimum pension schemes in a range of European countries. In particular, we quantify the extent to which these schemes contribute to alleviate elderly poverty across Europe. 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.

The Distributional Effects of Taxes and Transfers Under Alternative Income Concepts: The Importance of Three 'I's

This article investigates how the distribution of income changes when the standard disposable income (DI) is replaced by an extended income (EI) concept that includes the three “I”s: indirect taxes, imputed rent, and in-kind benefits. Second, it assesses the distributional effects of the main types of tax-benefit instruments under different income concepts. The analysis covers three European countries (Belgium, Greece, and the United Kingdom) characterized by substantially different tax-benefit systems. 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 EI. Moreover, the common use of a narrower income concept, such as the DI, 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.

Removing Homeownership Bias in Taxation: The Distributional Effects of Including Net Imputed Rent in Taxable Income

The income tax systems of most countries entail a favourable treatment of homeownership, compared to rental-occupied housing. Such ‘homeownership bias’ and its consequences for a wide range of economic outcomes have long been recognised in the economic literature. Although a removal of the homeownership bias is generally advocated on efficiency grounds, its distributional implications are often neglected, especially in a cross-country perspective. In this paper, we aim to fill this gap by investigating the first-order effects, in terms of distribution of income and work incentives, of removing the income tax provisions favouring homeownership. We consider six European countries – Belgium, Germany, Greece, Italy, the Netherlands and the UK – that exhibit important variation in terms of income tax treatment of homeowners. Using the multi-country tax benefit model EUROMOD, we analyse the distributional consequences of including net imputed rent in the taxable income definition that applies in each country, together with the removal of existing special tax treatments of incomes or expenses related to the main residence; thus, we provide a measure of the homeownership bias. We implement three tax policy scenarios. In the first, imputed rent is included in the taxable income of homeowners, while at the same time existing mortgage interest tax relief schemes and taxation of cadastral incomes are abolished. In the two further revenue-neutral scenarios, the additional tax revenue raised through the taxation of imputed rent is redistributed to taxpayers, through either a tax rate reduction or a tax exemption increase. The results show how including net imputed rent in the tax base might affect inequality in each of the countries considered. Housing taxation appears to be a promising avenue for raising additional revenues, or lightening taxation of labour, with no inequality-increasing side effects.

From Housewives to Independent Earners: How the Tax System Can Help Women to Work in a Context of Strong Familialism

Abstract The Southern European countries share a similar welfare system which does not perform well either in terms of equity or efficiency. Using EUROMOD, the EU-wide microsimulation model, this paper evaluates the enhancement of both the redistributive and the incentive effects of the Italian tax-benefit system by introducing either a family-based or an individual in-work benefit, financed through the abolition of the existing tax credit targeted at dependent adults. The results show an increase in the labour supply of women both in couples and lone mothers, in particular among the poorest, with important redistributive effects. The in-work benefits can contribute to the de-familialisation of the Mediterranean welfare states by reducing the reliance on the family and compensating the cost of services.