Welfare Reform in European Countries: A Microsimulation Analysis

By H. Immervoll, H. Kleven, C. Kreiner, Emmanuel Saez. Social Science Research Network, 2005

137 citations recorded by the source corpus.

This paper estimates the welfare and distributional impact of two types of welfare reform in the 15 (pre-enlargement) member countries of the European Union. The reforms are revenue neutral and financed by an overall and uniform increase in marginal tax rates on earnings. The first reform distributes the additional tax revenue uniformly to everybody (traditional welfare) while the second reform distributes tax proceeds uniformly to workers only (in-work benefit). We build a simple model of labor supply encompassing responses to taxes and transfers along both the intensive and extensive margin. We then use EUROMOD to describe current welfare and tax systems in European Union countries and use calibrated labor supply elasticities along the intensive and extensive margins to analyze the effects of the two welfare reforms. We quantify the equity-efficiency trade-off for a range of elasticity parameters. In most countries, because of large existing welfare programs with high phaseout rates, the uniform redistribution policy is undesirable unless the redistributive tastes of the government are extreme. The in-work benefit reform, on the other hand, is desirable in a very wide set of cases. We discuss the practical policy implications for European welfare policy.

Subfields: Gender Studies, Management Science and Operations Research, Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/1524dd14705d439d777492edb62551dc2ea85bfe

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Gender Studies

In Management Science and Operations Research

In Political Science and International Relations

Citations in the corpus

The Policy Elasticity (2016, background): “In more recent work, Immervoll et al. (2007, 2011) also consider a “critical values” approach to additional redistribution that solves for what the social welfare weights must be in order to prefer a policy change.”
EUROMOD: the European Union tax-benefit microsimulation model (2012, background): “Moreover, labor supply estimated preferences and elasticities are a key ingredient in a series of papers on the optimality of tax systems and welfare regimes (Bargain et al., 2011; 2012a; Bourguignon and Spadaro, 2012; Immervoll et al., 2007; 2011) and the cross-country perspective offered by EUROMO”
Microsimulation and policy analysis (2014, background): “These are also central parameters in assessing optimal tax design, see Immervoll et al. (2007) and Brewer et al. (2010) for empirical applications.”
Comparing Labor Supply Elasticities in Europe and the US: New Results (2012, methodology): “Two recent studies (Immervoll et al., 2007 and 2011) have conducted international comparisons of redistributive systems in Europe, and their results could be reassessed in the light of the estimates provided in the present study.”
Trade and Unemployment: What Do the Data Say? (2011, background): “It therefore measures the total fiscal burden imposed on the worker (see also Saez (2002) or Immervoll et al. (2007)) and is sometimes referred to as the participation tax.”