Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/36154 
Year of Publication: 
2009
Series/Report no.: 
IZA Discussion Papers No. 4520
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
How do different components of the tax and transfer systems affect disposable income inequality? This paper explores the redistributive effects of different tax benefit instruments in the enlarged EU based on two approaches. Inequality analysis based on the standard approach suggests that benefits are the most important factor reducing inequality in the majority of countries. The factor source decomposition approach, however, suggests that benefits play a negligible role and sometimes even contribute slightly positive to inequality. On the contrary, here taxes and social contributions are by far the most important contributors to income inequality reduction. We explain these partly contradictory results with the different normative focus of the two approaches and show that benefits have other aims than redistribution. Finally, our country clustering shows that the Eastern European countries do not form a distinguished group. The Central Eastern European countries group together with the Continental European countries and the Baltic States show similarities with some Southern European countries.
Subjects: 
Inequality
redistribution
decomposition
tax benefit systems
JEL: 
D31
D60
H20
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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