Policy recommendations on the gender effects of changes in tax bases, rates, and units: results of microsimulation analyses for six selected EU member states
15 Mar 2019
The design of tax systems has a considerable impact on the personal distribution of income and wealth at the household and the individual level, and due to the gender-differentiated socio-economic conditions also in a gender perspective. One of the most important areas of taxation is the taxation of personal incomes through the personal income tax. It directly influences the after-tax distribution of incomes from the various income sources. Besides the level of income tax rates and the design of the income tax schedule (progressive versus flat tax schedule), the system of household taxation (joint versus individual taxation), the determination of taxable income and the design of tax exemptions (tax allowances versus credits), particularly child-related ones, are crucial determinants in this respect. In addition to the gender-differentiated distributional impact, income tax systems may also have a gender-differentiated effect on work incentives and the distribution of paid and unpaid work between men and women. It is important to note that these gender-differentiated effects imply an implicit tax bias of income tax systems which results from different socio-economic conditions and behavioural patterns of women and men, while modern income tax systems do not include any tax provisions linked to gender and thus do not contain any explicit tax bias. Against this background, the paper presents an overview of the microsimulation results for selected provisions of the personal income tax system done with EUROMOD for six selected Member States of the European Union (EU): Germany, Austria, Spain, Czech Republic, United Kingdom, and Sweden. These Member States were selected because they belong to different “families of taxation” with different traditions, institutional, historical and cultural factors and developments, and different religious and partisan influences shaping the evolution of (personal income) tax systems. Overall, our simulations show that the design of income tax schedules, systems of household taxation and (tax-related) child benefits has non-negligible effects on income distribution as well as work incentives in general and particularly from a gender perspective for the six EU Member States considered. Although the effects differ across countries, particularly on the level of household types, depending on the concrete design of the tax benefit system and the interactions between tax and benefit provisions, some general tendencies and effects can be identified. Firstly, the introduction of a flat tax hardly impacts the simulated poverty risk, but increases income inequality. Gender-differentiated effects are less clear-cut, and their extent differs across countries. However, generally a flat tax benefits couple households with a male active income contributor, while households with female active income contributors lose. Rather pronounced gender differences can also be found between active lone mothers and fathers. While in almost all countries active lone mothers lose from the introduction of a flat tax, active lone fathers are winners. Secondly, replacing individual taxation by a joint taxation system with income splitting has small effects on the poverty risk only, but decreases income inequality in all countries analysed. The introduction of joint taxation with income splitting benefits couple households with one active income contributor in almost all countries included, regardless of the existence of children and of the gender of the active income contributor. Gender-differentiated effects are almost non-existent in childless couple households with one active income contributor. They are a little more pronounced if there are children in the household, due to income differences between spouses. Thirdly, our simulations show that the various child benefits have the expected overall distributional effects. Replacing an existing child benefit granted as cash transfer by tax-related child benefits raises the poverty risk and income inequality. Moreover, the inequality- and poverty-increasing effect of a child tax allowance is estimated to be higher compared to that of a child tax credit. Gender-differentiated effects are not clear-cut and require deeper analyses. Overall, one central result of our analyses is that the extent of gender differences in the effects of the various simulation scenarios differs markedly across the countries included. It remains to be explored, in a next step, to what extent these cross-country differences in the gender-differentiated impact of policy measures are associated with the prevailing welfare state / family of taxation types.