New analysis from EUROMOD in World Bank flagship report on Europe and Central Asia

The World Bank has published a new flagship report, Toward a New Social Contract : Taking on Distributional Tensions in Europe and Central Asia, drawing on analysis using EUROMOD, the tax-benefit microsimulation model developed at ISER at the University of Essex.

Cyril Muller, World Bank vice president for Europe and Central Asia, describes the report in this blog post.

“Social and economic tensions—between workers, between generations, and between regions— impact citizens’ day-to-day lives and their sense of well-being. While one might argue that countries in Europe and Central Asia are well-equipped to deal with such tensions, given their long experiences with social welfare institutions, we must remember that these institutions were designed during a very different economic environment.

In many countries today, the bulk of social protection and pension benefits are available to those with long and stable employment histories – but younger generations, in particular, do not have such histories. Since the 1980s, tax systems have increasingly penalised younger cohorts. In the early 2010s, when flat tax regimes were introduced in some Eastern European countries, the average tax rate for 18 to 24-year-old taxpayers rose by about 10 percentage points, while it decreased for individuals aged 35 to 44 years.

We know there is no quick fix. But passively compensating individuals, while trying to curb the trends – by preventing trade or rejecting new technologies – has not worked in the past and will not work in the future.

Our new report proposes three overall policy principles to help address rising inequality and increased vulnerability in society.

This approach would promote equal protection of all workers, regardless of their type of employment; encourage the universal provision of social assistance, social insurance, and basic quality services; and improve the fairness of the tax system by supporting progressivity of a broad tax base that complements labour income taxation with the taxation of capital. And, hopefully, this research and analysis will help countries level the playing field and unleash greater economic opportunity for all citizens – regardless of their occupation, age, gender or location.”

Read the World Bank report, Toward a New Social Contract : Taking on Distributional Tensions in Europe and Central Asia