Documents Paulus, Alari 8 results

"The effect of demographic change on the labor force and on fiscal revenues is topical in light of potential pension shortfalls. This paper evaluates the effect of demographic changes between 2010 and 2030 on labor force participation and government budgets in the EU-27. Our analysis involves the incorporation of population projections, and an explicit modeling of the supply and demand side of the labor market. Our approach overcomes a key shortcoming of most existing studies that focus only on labor supply when assessing the effects of policy reforms. Ignoring wage reactions greatly understates the increase in fiscal revenues, suggesting that fiscal strain from demographic change might be less severe than currently perceived. Finally, as a policy response to demographic change and worsening fiscal budgets, we simulate the increase in the statutory retirement age. Our policy simulations confirm that raising the statutory retirement age can balance fiscal budgets in the long run."

"We compare the distributional effects of policy changes introduced in the period 2008-2013 in twelve EU countries using the EU microsimulation model EUROMOD. The countries, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Latvia, Lithuania, Portugal, Romania and the UK, chose different policy mixes to achieve varying degrees of fiscal consolidation or expansion. We find that comparisons of the size and distributional effects of policy changes over time are sensitive to the counterfactual assumption that is adopted in adjusting 2008 policies for changes in prices and incomes over the period. Nevertheless, it is clear that the direct tax, public pension and cash benefit changes had broadly progressive effects across the pre-policy change income distributions, except in Germany, Estonia and Lithuania. Including increases in VAT alters the comparative picture by making the policy packages appear more regressive, to varying extents. The paper also explores the implications of the policy changes for measures of risk of poverty and examines the incidence of the changes by age."

"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."

"We compare the distributional effects of austerity measures that have been introduced in 6 EU countries in the period of large government budget deficits following the 2007-8 financial crisis and subsequent economic downturn. We explore the effects of policy changes presented as “austerity measures” in Estonia, Ireland, Greece, Spain, Portugal and the UK, using the EU microsimulation model EUROMOD and the Irish national model, SWITCH. The six countries have chosen different policy mixes to achieve varying degrees of fiscal consolidation. We focus on the first round effects of increases in personal taxes, cuts in spending on cash benefits and reductions in public sector pay across the distributions of household income. There is a range of important conceptual and consistency issues to be addressed when doing such analysis, particularly in a comparative setting. These include how to identify “austerity measures” in a consistent manner, the relevant time periods to consider, the assumptions behind the counterfactual scenarios and the scope of the policies considered. Using a set of common assumptions we find that the burden of fiscal consolidation brought about through changes in components of household disposable income is shared differently across the income distribution in the six countries. At one extreme, in Greece, the better off lose a higher proportion of their incomes than the poor and at the other, in Portugal, the poor lose a higher proportion than the rich. Bringing increases in indirect taxes into the picture can alter conclusions about the overall distributional effect, increasing the cost most for those with lower income and making the overall incidence of the measures more regressive."

"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."

"Tax and benefit systems in the enlarged EU vary significantly in size and structure. We examine how taxes and benefits shape income distributions in 19 EU countries, focusing on the differences between Western European countries (EU15) and Eastern European countries (Estonia, Hungary, Poland, Slovenia). We use EUROMOD, the European tax-benefit microsimulation model, which simulates taxes and benefits for representative samples of household micro-data and through a common framework which allows the analysis of cross-country differences on a comparable basis. The analysis concentrates on the distribution and composition of incomes, and the effect of taxes and benefits on poverty and inequality"

"This paper assesses the effect of key demographic changes (population ageing and upskilling) that are expected by 2030 on the income distribution in the EU-27 and examines the potential of tax-benefit systems to counterbalance negative developments. Theory predicts that population ageing should increase income inequality, while the effect of up-skilling is more ambiguous. Tax-benefit systems may stabilize these expected changes though this is largely an empirical question given their typically complex nature. We use a decomposition technique to isolate the effect of projected demographic change on income inequality and poverty from the reaction of the labor market to this demographic change through wage adjustments. Our results show that demographic change is likely to lead to increasing inequality while related wage adjustments work mainly in the opposite direction. Changes to projected relative poverty are minimal for most countries. With a few exceptions, EU tax-benefit systems are able to absorb most of projected increase in market income inequality."