The effect of tax-benefit changes on income distribution in EU countries since the beginning of the economic crisis

Summary

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.