This study aims to expand the use of tax-benefit microsimulation tools in Indonesia. In particular, it reviews the feasibility of expanding SOUTHMOD, a tax-benefit microsimulation model being applied in developing countries that was developed based on the European Union tax-benefit microsimulation tool (EUROMOD) framework. First, the study reviews the tax and benefits system in Indonesia, followed by an explanation of possible data set and data requirements for simulation. Two potential sources of data are the fifth round of the Indonesia Family Life Survey and the National Socio-Economic Survey. Despite advantages and disadvantages to each, the results of the feasibility study show that both data sets could support the extension of the microsimulation model. This extension should be adjusted to the conditions of the data. For instance, we can focus on simulating indirect taxes, which are more relevant as they represent one of the core revenue sources in developing countries.
The increasing flows of immigrants in Europe over the last decade has generated a range of considerations in the policy agenda of many receiving countries. One of the main considerations for policy makers and public opinions alike is whether immigrants contribute their "fair" share to their host country tax and welfare system. This paper seeks to answer this question based on an empirical assessment of the net fiscal contributions of immigrants in the 27 EU member states using EUROMOD, a EU-wide tax-benefit microsimulation model. In addition to the traditional view of the tax-benefit system, we add indirect taxation and in-kind benefits to the analysis of net contributions. Our findings highlight that migrants on average contributed about 250 euro per year more than natives to the welfare state in 2015. However, when we take an average age-specific life-cycle perspective, we find that natives generally show a higher net fiscal contribution than both, intra-EU and extra-EU migrants, while extra-EU migrants contribute on average less than intra-EU migrants.
Policy discussions on pension systems generally focus on their sustainability and design, including retirement age, income reference and contributory period while relative little attention is devoted to the tax treatment of pension contributions and pension benefits. However, tax expenditures - defined as deviations from an agreed benchmark tax system - are widely used in the EU Member States and little is known on their redistributive or fiscal impact. This paper quantifies the fiscal and distributional impact of tax expenditures related to public and private contributory pension schemes, affecting both contributions and pension benefits, in 28 European countries using EUROMOD, the EU-wide microsimulation model. We find that pension-related tax expenditures can have a sizeable revenue impact and strong effects on inequality and poverty. Moreover tax expenditures tend to be progressive at two levels. First, among elderly, favoring lower income pensioners, mainly through a favorable treatment of pension incomes. Second, among working-age individuals, through partial or no deduction of pension contributions, draining resources from those at the top of the income distribution.
"This book offers the first systematic assessment of income redistribution in Eastern Europe, within a comparative European perspective, and it demonstrates the future research potential of microsimulation techniques in this region. The book's chapters are based on a unique instrument -- EUROMOD: the European tax-benefit microsimulation model, which has been enlarged to include Estonia, Hungary, Poland, Slovenia and other countries. Tax-benefit models such as EUROMOD are computer programmes based on household micro-data, which calculate each household's disposable income. Microsimulation can be used to evaluate the impact of current taxes and benefit policies on individuals' incomes and work incentives. In addition, the model is designed to answer 'what if' questions about different policy reforms, allowing the potential effects of proposed changes to be studied before their actual implementation. EUROMOD goes one step further in the process of helping policy design, in allowing international comparisons between EU countries. This book offers an important demonstration of the effectiveness of tax-benefit models in presenting complex information in a concise and comprehensible way. It discusses what the barriers to their adoption to date have been and it looks at the possibilities EUROMOD offers to future policy-making in Europe."--Provided by publisher.
Minimum income schemes are set to provide citizens with a minimum living standard. In Spain, these schemes consist of a heterogeneous and complex collection of regional benefits designed and implemented by the Autonomous Communities. This generates important regional discrepancies among the poorest individuals, undermining equal access, adequate social assistance and ultimately the fairness of these last resort safety nets. Following the recent initiative by the central government to introduce a national minimum income scheme complementing the regional ones, a better understanding of the performance of the existing regional minimum income schemes, in terms of their coverage and adequacy, is of the essence. We assess the budgetary, distributional and poverty effects of the current Spanish regional minimum income schemes, as well as the impact of increasing both coverage rates and adequacy levels. Using the European microsimulation model EUROMOD together with microdata from the European Union Statistics on Income and Living Conditions, we simulate a sequence of theoretical scenarios with different combinations of coverage and adequacy levels using national and regional poverty lines as references. Our results suggest that increasing adequacy would have a higher impact on poverty rates than increasing coverage, but would be less effective to reduce poverty intensity. Importantly, all scenarios imply significant expenditure increases, the more so for larger decreases in poverty intensity, as would be expected. Noticeably, results greatly differ among regions, and are sensitive to measuring poverty under a national or a regional criterion, reflecting Spanish regional disparities in terms of poverty.
Minimum income schemes are set to provide citizens with a minimum living standard. In Spain, these schemes consist of a heterogeneous and complex collection of regional benefits designed and implemented by the Autonomous Communities. This generates important regional discrepancies among the poorest individuals, undermining equal access, adequate social assistance and ultimately the fairness of these last resort safety nets. Following the recent initiative by the central government to introduce a national minimum income scheme complementing the regional ones, a better understanding of the performance of the existing regional minimum income schemes, in terms of their coverage and adequacy, is of the essence. We assess the budgetary, distributional and poverty effects of the current Spanish regional minimum income schemes, as well as the impact of increasing both coverage rates and adequacy levels. Using the European microsimulation model EUROMOD together with microdata from the European Union Statistics on Income and Living Conditions, we simulate a sequence of theoretical scenarios with different combinations of coverage and adequacy levels using national and regional poverty lines as references. Our results suggest that increasing adequacy would have a higher impact on poverty rates than increasing coverage, but would be less effective to reduce poverty intensity. Importantly, all scenarios imply significant expenditure increases, the more so for larger decreases in poverty intensity, as would be expected. Noticeably, results greatly differ among regions, and are sensitive to measuring poverty under a national or a regional criterion, reflecting Spanish regional disparities in terms of poverty.
In empirical analysis, the Kakwani index is the most frequently used indicator for comparing progressivity across countries and over time. The Kakwani is often assumed to measure to what extent a policy design is targeted to the poor. It has, however, a major drawback: it is not defined for net tax incidence - that is, the whole system of taxes and benefits. Moreover, it is defined over different intervals for different pre-tax income distributions and different average tax rates. This paper proposes an extension to Kakwani index based on the concept of relative redistributive efficiency that is not affected by these drawbacks. The Redistributive Efficiency index was compared to the Kakwani index for taxes/benefits in EU countries by using Euromod baselines. In addition, the Redistributive Efficiency index was computed on the whole tax-benefit system; that is, taxes and benefits were evaluated together. Only Ireland and the UK combine high levels of redistributive efficiency with a relevant amount of tax revenues and social expenditures. They obviously obtain very high redistribution, above 15 points. Most of the countries considered show an intermediate level of redistribution (between 7 and 12 points), but with a different mix. A group of Central and Northern European countries plus Slovenia and Hungary combine medium levels of redistributive efficiency and medium size, while some Southern European countries (Spain and Portugal) and new members compensate a rather low amount of transfer and taxes with quite high levels of efficiency. The remaining new member states and Southern EU countries show a very low level of redistribution, below 7 points. Interestingly, they vary in the level of tax burden and of resources devoted to benefits but all of them show a poor Redistributive Efficiency. This suggests that low Redistributive Efficiency plays a key role in explaining why certain countries perform a limited amount of redistribution.
In this paper we introduce UKMOD, a new tax-benefit model for England, Wales, Scotland, Northern Ireland and the whole of the UK. The model originates and replaces as a stand-alone model the UK component of EUROMOD, the tax-benefit model for the European Union member states, which from 2021 is not updated anymore. We describe the main departures from EUROMOD, discuss some key assumptions including data issues, and provide information on the nowcasting and macro-validation procedure applied.
The increasing flows of immigrants in Europe over the last decade has generated a range of considerations in the policy agenda of many receiving countries. One of the main considerations for policy makers and public opinions alike is whether immigrants contribute their "fair" share to their host country tax and welfare system. This paper seeks to answer this question based on an empirical assessment of the net fiscal contributions of immigrants in the 27 EU Member States using EUROMOD, a EU-wide tax-benefit microsimulation model. In addition to the traditional view of the tax-benefit system, we add indirect taxation and in-kind benefits to the analysis of net contributions. Our findings highlight that migrants on average contributed about 250 euro per year more than natives to the welfare state in 2015. However, when we take an average age-specific life-cycle perspective, we find that natives generally show a higher net fiscal contribution than both, intra-EU and extra-EU migrants, while extra-EU migrants contribute on average less than intra-EU migrants.
The design of tax systems has a considerable impact on the distribution of income and wealth at the household and the individual level, and due to gender-differentiated socio-economic conditions also in a gender perspective. One of the most important areas of taxation is the taxation of personal incomes. Besides the level of income tax rates and the design of the income tax schedule (progressive versus flat tax schedule), the system of household taxation (joint versus individual taxation), the determination of taxable income and the design of tax exemptions (tax allowances versus credits), particularly child-related ones, are crucial determinants of the distributional effects and work incentives of the personal income tax. The study presents an overview of the microsimulation results for selected provisions of the personal income tax system on income distribution and work incentives. The microsimulations are based on EUROMOD for six selected EU countries: Germany, Austria, Spain, Czech Republic, UK, and Sweden, countries of different "families" of welfare and taxation traditions.
This paper provides a short country-by-country harmonised analysis - using EUROMOD - of the distributional effects on household disposable income of direct tax and cash benefit policy changes between 2018 and 2019. It is the latest in this series of reports, available as EUROMOD working papers, produced annually on the public release of an updated EUROMOD. At the same time, last year's equivalent report - covering policy changes between 2017 and 2018 - has also been revised to account for the availability of more recent input micro-data, model extensions and corrections and finalised HICP values for 2018. In this paper, we show how changes (or non-changes) in tax-benefit policies have affected household incomes, abstracting from changes in the population characteristics (e.g. increased unemployment) and the distribution of market/original gross incomes in the years under consideration. The tax-benefit policies in a given year refer to those that applied on 30th of June. (.)
Policy discussions on pension systems generally focus on their sustainability and design, including retirement age, income reference and contributory period, with relatively little attention devoted to the tax treatment of pension contributions and pension benefits. However, tax expenditures - defined as deviations from an agreed benchmark tax system - are widely used in EU Member States, and little is known about their fiscal and distributional impact. This paper quantifies the fiscal and distributional impact of tax expenditures related to public and private contributory pension schemes, affecting both contributions and pension benefits, in 28 European countries using EUROMOD, the EU-wide microsimulation model. We find that pension-related tax expenditures can have a sizeable impact on revenue and strong effects on inequality and poverty. Tax expenditures tend to be progressive on two levels: first, among pensioners, by favoring those with lower incomes, mainly as a result of the preferential treatment given to pension incomes; and, second, among people of working age, through a partial or no deduction of pension contributions, draining resources from those at the top of the income distribution. Moreover, embracing a lifetime perspective, tax expenditures tend to redistribute resources in favor of women and low educated individuals.
The at-risk-of-poverty rate is one of the three indicators used for monitoring progress towards the Europe 2020 poverty and social exclusion reduction target. Timeliness of this indicator is critical for monitoring the effectiveness of policies. However, due to complicated nature of the European Union Statistics on Income and Living Conditions (EU-SILC) poverty risk estimates are published with a 2 to 3 year delay. This paper presents a method that can be used to estimate (nowcast) the current at-risk-of-poverty rate for the European Union (EU) countries based on EU-SILC microdata from a previous period. The EU tax-benefit microsimulation model EUROMOD is used for this purpose in combination with up to date macro-level statistics. We validate the method by using EU-SILC data for 2007 incomes to estimate at-risk-of-poverty rates for 2008-2012, and where possible compare our predictions with actual EU-SILC and other external statistics. The method is tested on eight EU countries which are among those experiencing the most volatile economic conditions within the period: Estonia, Greece, Spain, Italy, Latvia, Lithuania, Portugal and Romania.
We explore the prospects for using the EU-SILC as the underlying micro-database for policy simulation across the EU. In particular we consider the issues to be addressed, and the advantages arising, from building a database from the EUSILC for the EU tax-benefit model, EUROMOD. In order to identify the issues and illustrate their importance a trial database for Spain is constructed. It is used within EUROMOD to calculate some selected social indicators as well as indicators of work incentives and the effects of fiscal drag in Spain between 2003 and 2006. We conclude that, although transforming the EU-SILC into a database for EUROMOD would require a significant amount of effort, this is likely to be worthwhile because of the consequential improvements in comparability across countries, efficiency in developing and maintaining the model for many countries and simplification of access arrangements. We therefore offer some suggestions for how to improve the User Database for this purpose.
The design of tax systems has a considerable impact on the personal distribution of income and wealth at the household and the individual level, and due to the gender-differentiated socio-economic conditions also in a gender perspective. One of the most important areas of taxation is the taxation of personal incomes through the personal income tax. It directly influences the after-tax distribution of incomes from the various income sources. Besides the level of income tax rates and the design of the income tax schedule (progressive versus flat tax schedule), the system of household taxation (joint versus individual taxation), the determination of taxable income and the design of tax exemptions (tax allowances versus credits), particularly child-related ones, are crucial determinants in this respect. In addition to the gender-differentiated distributional impact, income tax systems may also have a gender-differentiated effect on work incentives and the distribution of paid and unpaid work between men and women. It is important to note that these gender-differentiated effects imply an implicit tax bias of income tax systems which results from different socio-economic conditions and behavioural patterns of women and men, while modern income tax systems do not include any tax provisions linked to gender and thus do not contain any explicit tax bias. Against this background, the paper presents an overview of the microsimulation results for selected provisions of the personal income tax system done with EUROMOD for six selected Member States of the European Union (EU): Germany, Austria, Spain, Czech Republic, United Kingdom, and Sweden. These Member States were selected because they belong to different "families of taxation" with different traditions, institutional, historical and cultural factors and developments, and different religious and partisan influences shaping the evolution of (personal income) tax systems. Overall, our simulations show that the design of income tax schedules, systems of household taxation and (tax-related) child benefits has non-negligible effects on income distribution as well as work incentives in general and particularly from a gender perspective for the six EU Member States considered. Although the effects differ across countries, particularly on the level of household types, depending on the concrete design of the tax benefit system and the interactions between tax and benefit provisions, some general tendencies and effects can be identified. Firstly, the introduction of a flat tax hardly impacts the simulated poverty risk, but increases income inequality. Gender-differentiated effects are less clear-cut, and their extent differs across countries. However, generally a flat tax benefits couple households with a male active income contributor, while households with female active income contributors lose. Rather pronounced gender differences can also be found between active lone mothers and fathers. While in almost all countries active lone mothers lose from the introduction of a flat tax, active lone fathers are winners. Secondly, replacing individual taxation by a joint taxation system with income splitting has small effects on the poverty risk only, but decreases income inequality in all countries analysed. The introduction of joint taxation with income splitting benefits couple households with one active income contributor in almost all countries included, regardless of the existence of children and of the gender of the active income contributor. Gender-differentiated effects are almost non-existent in childless couple households with one active income contributor. They are a little more pronounced if there are children in the household, due to income differences between spouses. Thirdly, our simulations show that the various child benefits have the expected overall distributional effects. Replacing an existing child benefit granted as cash transfer by tax-related child benefits raises the poverty risk and income inequality. Moreover, the inequality- and poverty-increasing effect of a child tax allowance is estimated to be higher compared to that of a child tax credit. Gender-differentiated effects are not clear-cut and require deeper analyses. Overall, one central result of our analyses is that the extent of gender differences in the effects of the various simulation scenarios differs markedly across the countries included. It remains to be explored, in a next step, to what extent these cross-country differences in the gender-differentiated impact of policy measures are associated with the prevailing welfare state / family of taxation types.
