Methodology and measurement

The standard EU approach to understanding the effects of redistributive systems is to deduct the sum of social benefits from household disposable income, as recorded in surveys such as EU-SILC, and to examine the effect on indicators of inequality and income distribution (European Commission, 2008).[1] Here, this approach is extended by exploiting the possibilities offered by the multi-country tax-benefit microsimulation model EUROMOD. This is currently undergoing a major revision in order to cover all EU countries in a consistent way. Here the focus is on 18 countries for which reasonably up-to-date data are available - see the Background information for further details. Not least importantly, the model allows explicit account to be taken of the redistribution effected by the tax system, as well as by social benefits.

Treatment of taxes

Although efforts are made in EU-SILC, as in other surveys, to capture the direct taxes paid by households, it is often difficult to measure these in a precise and consistent way for each country. For example, gross incomes and taxes may need to be imputed from net income; the information may be available only for withholding taxes rather than final tax liability, and the difference might be substantial in some countries, in particular if an individual has more than one income source.

[1] The standard approach in the OECD and in most of the literature is to deduct taxes from, and add transfers to, gross market income. For example, see OECD (2008).