The redistributive effect of the Romanian tax-benefit system: a microsimulation approach

Summary

This paper attempts to investigate the income distribution of Romanian
households, focusing on the role of the tax-benefit system in income
redistribution. We evaluate the redistributive effect by estimating
income inequality changes due to tax-benefit components. We use EU-SILC
microdata and the EUROMOD microsimulation model to simulate income
components. The results point out that income inequality is considerably
reduced through the tax-benefit system, as a great deal of income is
redistributed among households. The analysis of the income components
that contribute to inequality reduction emphasizes that pensions,
personal income taxes and social benefits are in favour of inequality
reduction, while social contributions act the opposite way. Our results
are sensitive to social and fiscal policy changes.