European countries have the world’s most redistributive tax and transfer systems. While they have been well equipped to deal with vertical inequality – fostering redistribution from the rich to the poor – less is known about their performance in dealing with horizontal inequality, that is, in redistributing across socioeconomic groups. In a context where individuals may not only care about vertical redistribution, but also about the economic situation of the specific groups they belong to, the horizontal dimension of redistribution becomes politically salient and can be a source of social tensions. The authors analyse the performance of the 28 EU countries for redistribution across (i) age groups; (ii) occupational groups; and (iii) household types over the period 2007–2014 using counterfactual simulation techniques. We find a significant degree of heterogeneity across countries: changes in the tax and transfer system have particularly hit the young and the losers of occupational change in Eastern European countries, while households with greater economic security have benefited from these changes. The findings of this study suggest that horizontal inequality is a dimension which policy-makers should take into account when reforming tax and transfer systems.
This paper is a background paper produced for the World Bank 2018 report: ‘Towards a New Social Contract: Taking on Distributional Tensions in Europe and Central Asia’. The results presented here are based on EUROMOD version H1.0+. EUROMOD is maintained, developed and managed by the Institute for Social and Economic Research (ISER) at the University of Essex, in collaboration with national teams from the EU member states. We are indebted to the many people who have contributed to the development of EUROMOD. The process of extending and updating EUROMOD is financially supported by the European Union Programme for Employment and Social Innovation ‘Easi’ (2014–2020). The results and their interpretation are the authors’ responsibility.
Bussolo, M., Krolage, C., Makovec, M., Peichl, A., Stöckli, M., Torre, I. and Wittneben, C. (2019), "Vertical and Horizontal Redistribution: Evidence from Europe", Decancq, K. and Kerm, P.V. (Ed.) What Drives Inequality? (Research on Economic Inequality, Vol. 27), Emerald Publishing Limited, Leeds, pp. 19-38. https://doi.org/10.1108/S1049-258520190000027003
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