Vertical and horizontal redistribution: the cases of Western and Eastern Europe

Publication type:

Research Paper

Series Number:

8657

Authors

Maurizio Bussolo, Carla Krolage, Mattia Makovec, Andreas Peichl, Marc Stockli, Ivan Torre and Christian Wittneben

Publication date

15 Nov 2018

Summary

European countries have the world’s most redistributive tax and transfer systems. Although they have been well equipped to deal with vertical inequality—that is, fostering redistribution from the rich to the poor—less is known about their performance in dealing with horizontal inequality, that is, in redistributing among socioeconomic groups. In a context where individuals may not only care about vertical redistribution, but also about the economic situation of the specific groups to which they belong, the horizontal dimension of redistribution becomes politically salient and can be a source of social tensions. This paper analyzes the performance of the 28 EU countries on redistribution across (i) age groups, (ii) occupational groups, and (iii) household types over 2007–2014 using counterfactual simulation techniques. The analysis finds a great degree of heterogeneity across countries: changes in the tax and transfer system have particularly hit the young and losers of occupational change in Eastern European countries, while households with greater economic security have benefited from these changes. The findings suggest that horizontal inequality is a dimension that policy makers should take into account when reforming tax and transfer systems.

Subjects

Economics, Income Dynamics, Microsimulation, Taxation and Social Stratification

Links

http://documents.worldbank.org/curated/en/375081543509025568/pdf/WPS8657.pdf