The budgetary and redistributive impact of pension taxation in the EU: A microsimulation analysis

Authors: Viginta Ivaškaitė-Tamošiūnė & Andreas Thiemann

Pension taxation has large budgetary and distributional effects, in particular in the light of ageing societies and the importance of pension benefits in old-age income. This paper investigates the impact of taxing public and mandatory occupational old-age pensions in the EU, focusing on both contributions and benefits. Using the microsimulation model EUROMOD, we simulate two hypothetical taxation scenarios for the 27 Member States of the EU. While the double exemption scenario (EE) fully removes pension taxation, the double taxation scenario (TT) fully taxes pension benefits and does not exempt pension contributions. A switch to the EE scenario is associated with a fiscal cost of 0.9% of GDP, whereas the adoption of the TT scenario would lead to a fiscal gain of 1.2% of GDP, abstracting from behavioural reactions. Rich taxpayers tend to gain relatively more compared to the poor under the EE scenario because of progressive personal income taxation in a majority of countries, while the opposite holds for the TT scenario. The distributional impact, nevertheless, depends also to a large extent on the relative importance of public and mandatory occupational pension benefits in old-age income.

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Does it pay to say “I do”? Marriage bonuses and penalties across the EU

Authors: Michael Christl, Silvia De Poli & Viginta Ivaškaitė-Tamošiūnė

We analyse the different fiscal treatment of married and cohabiting couples across all EU Member States using microsimulation methods. Our paper highlights important differences across EU countries’ tax-benefit systems, where seven countries show substantial bonuses for married couples and four exhibit marriage penalties. On a micro level, we find that these marriage bonuses/penalties differ substantially across household types and income. From a policy point of view, our results suggest that the abolishment of marriage-related tax-benefit components in countries with marriage bonuses would leave some households financially worse off but would increase governments revenues that could be spent to targeted support of specific groups. From both an equity and a gender equality point of view, this abolishment would be desirable.

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Tax progressivity and self-employment dynamics

Authors: Wiji Arulampalam and Andrea Papini

Analysis of the relationship between taxes and self-employment should account for the interplay between responses in self-employment and wage employment. To this end, we estimate a two-state multi-spell duration model which accounts for both observed and unobserved heterogeneity using a large longitudinal administrative dataset for Norway for 1993 to 2011. Our findings confirm theoretical predictions, and are robust to various changes to definitions and sample selections. A policy experiment simulating a flatter tax schedule in the year 2000 is found to encourage self-employment, delivering a net increase of predicted inflow into self-employment from 2.8% to 5.3%.

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The fiscal impact of immigration in the EU

Authors: Michael Christl, Alain Bélanger, Alessandra Conte, Jacopo Mazza and Edlira Narazani

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.

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