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JEL: C

KeywMicro

ember 2011

stract compare thcountries in

ncial crisis annges presenthe UK, usinCH. The six cl consolidatending on cehold incomressed when to identify “sider, the ascies considesolidation brme is shared

eme, in Greeat the othe

eases in indibutional effall incidenc

C81, H55, I3

words: Austeosimulation.

e distribution the periodnd subsequ

nted as “ausng the EU mcountries hation. We foccash benefime. There isn doing suc“austerity msumptions b

ered. Using arought abod differentlyece, the be

er, in Portugarect taxes infect, increasce of the me

erity measur

onal effects d of large gouent economsterity measicrosimulatiave chosencus on the fiits and redus a range ofch analysis, pmeasures” inbehind the ca set of comut through cy across theetter off loseal, the poornto the pictsing the coseasures mor

res, Europea

of austerityovernment bmic downtusures” in Estoon model E

n different pirst round ef

uctions in puf important particularly

n a consistencounterfac

mmon assumchanges in

e income dise a higher pr lose a highture can altst most for tre regressive

an Union, Fis


y measures tbudget def

urn. We exponia, Ireland

EUROMOD aolicy mixes ffects of incublic sector conceptua in a compant manner, tual scenar

mptions we componenstribution in roportion o

her proportioer conclusiohose with loe.

scal consoli

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that have bficits followinlore the effed, Greece,

and the Irish to achieve

creases in per pay acrossal and consiarative settithe relevan

rios and the find that thnts of house the six counf their incomon than theons about thower incom

idation, Pov



been introdung the 2007ects of polic Spain, Portu

h national m varying deersonal taxes the distribuistency issueng. These in

nt time perio scope of the burden ohold disposntries. At onmes than the rich. Bringinhe overall e and mak

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uced in 7-8 cy ugal

model, egrees of es, cuts utions of es to be nclude ods to he f fiscal

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1. IThe esubseincomcrisis focusix EU

GovestartesurplPacthad GDP thosewithito acaddrsectothey someincombene

Figure

Source

ember 2011

ntroducteconomic cequent govme poverty on incomes instead on

U countries:

ernment bued in 2007. Ouses in 2007t limit of 3% obudget def (see Figuree in the EU wn the periodchieve naturesses the qor pay have have impae employer me distributefits and pu

e 1 Governm

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udgets wereOf the six co7 and anothof GDP. By 2ficits much

e 1). Our chowith the higd since 2007urally varieduestion of h

e been distrcted on risk costs (sociation and disblic service

ment deficits a

st accessed on

001 2002

Ne

EU-27

started in 20udget deficality. In this

n, which aremeasures alland, Greec

e extensivelyountries anaher two had2009 only Eshigher thanoice of six chest increas7. The degre, and so did

how reformsributed acrok of povertyal contributicuss the ch

es.

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n 16 Septembe

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et governm

EE IE

008 and thecits are widepaper we ig

e consideredone, compce, Spain, P

y affected balysed in thi

d budget destonia had a

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er 2011).

2004 2005

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e austerity mely perceivegnore wided for examparing their sortugal and

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y mix chosenpersonal taxgroups andonsider the

ncreases in Vmeasuring t

(2001-2010)

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measures to ed to be haer aspects ople in Jenkinsize and distd the United

ncial and ecree were ru

nd the Stabielow that limnd around obased on thduction in G these six gon to achiev

xes, cash bed types of ho incidence VAT, across the incidenc

2007 20

owing (-)

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counter theving an impf the econo

ns et al. (201tributional ed Kingdom.

conomic crinning budglity and Gro

mit. The otheor above 10eir being am

GDP or emplovernmentse it. Our an

enefits and pousehold, aof changes the househce of cuts in

08 2009

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e pact on omic 11) and effects in

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2. MThereeffechow partisameothenatulack equivtook meth

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1 For Ir

ember 2011

nge of impothese are reterity measumptions behesentative snational ve

SILC) and thay, taxes anOMOD.1

structure of s and briefly

ach countryysis of the d the differencludes by plnomic crisis caveats to b

Methodoe are many cts of auster to measurecularly impoe choices shr hand, the re and timin of data in svalent (com an essentiahodologica

ong the metnt as austerie happenedssed across nt can (andWe conside

ch measure

me countrieerity measuic sector pa

reland this vers

ortant concevealed cleures” in a cohind the coample of e

ersions of thehe Family Rend benefits a

this paper isy describes

y and highligdistributionant policy mixlacing this aas a whole,

be adopted

ology analytical crity measure

e the impacortant whenhould be m most approng of the msome countmparable) aally nationall difference

thodologicaty measure

d to policies the income

d should) inder each in tu

es count a

es, such as Gres. While m

ay, they also

sion of the pap

eptual andearly in a coonsistent ma

ounterfactuaach nationae Europeanesources Surare provide

s as follows. EUROMODghts those ml effects of txes have th

analysis in th, by summad when inte

choices andes on incomct and whatn making coade in eacopriate choeasures taktries, but noassessment il perspectiv

es when inte

al issues to bs? What is ts without thee distributiondirect effecurn.

as austerity

Greece, exmostly involvo include inc

per makes use

d consistencomparative anner, the tal scenariosal populatio Union Statirvey for the

ed using the

. Section 2 d. Section 3 i

modelled in the austerityeir own dist

he context oarising our prpreting the

d assumptiome. There art indicators omparisons h country fo

oice may vaken. In additt in others. Iin each cou

ve in each cerpreting res

be confronthe counterfe austerity mn, with a rea

cts and mac

y measures

plicit packaving tax incrcreases in s

of the nationa


cy issues aris setting. Thetime periods. We exploion, using mistics on Inco UK. Simulat

e EU tax-ben

discusses theintroduces t this analysisy measures tributional imof questionsolicy releva

em.

ons to be me also choicto use. Both across couor valid comary across cotion, possibin this papeuntry. This bcase and cosults (Levent

ed are the factual, i.e.measures? Wasonable dcroeconom

s?

ages of reforeases and ome benef

al tax-benefit m

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e when doiey include h to considet informatioicro-data froome and Livtions of the nefit microsi

e various mthe austeritys. Section 4 in the six complications.s about the

ant findings

made when ces to be mh types of cuntries. On thmparisons toountries, deilities may br we attemuilds on preonsidered thti et al., 2010

following: W what do wWhich meaegree of pric changes

orms have bcuts in sociafits or reduc

model, SWITCH



ing such anhow to identr, and the

on from a om the Euroving Conditeffects of cmulation m

methodologiy measures presents anountries and. Section 5 effects of tand by exp

simulating tmade in con

hoice are he one hano be made.epending onbe limited dupt to define

evious work whe implicati0).

Which measwe assume w

sures can brecision? To be accoun

been labelleal benefits ations in taxe

H.


stribution 2011

6

nalysis tify

ostat tions

changes model

cal taken n d shows

he plaining

the nsidering

nd the On the n the ue to e an which ions of

sures would be what nted

ed as and es for

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certapackpolictherealongrestruthe gexplichanagenconsusuatempthose

A secIn somcaseimplephasmacrelateinflueDistinthat beingPortualreachan

The c

The whappeffeccontindexindexmostare cregu

2 One

chang

reduc

short‐

ember 2011

ain groups tkage as a wcies would he was a chagside measucturing of tguise of auscitly introdunges implemnda and wosidered. Thel” agenda f

porary fiscae reforms w

cond area ome cases m

es, for instanemented fusing of tax inroeconomied to the loence expecnguishing bethe mediumg implemenugal during ady introducnges becau

counterfac

way in whicpened in thcts. We havinuation of xation is notxation rules t of the policchanged oclar indexatio

of the measu

ge in the index

cing benefits a

‐term simulat

o compenswhole can bhave evolveange of govsures that mthe welfare terity. In ge

uced in ordemented in aould have a

e idea is to dfrom those il stimulus meere original

of considerameasures are

ce in the UKully until mucncreases anc downturn

ong term resctations andetween them term plannted as wel2011).2 For tced (June, 2use this natu

ctual

h we simulae absence e chosen topre-austeritt the same (Sutherlandcies in Estonccasionally on and ad

ures in the UK

x used for ind

and tax‐free in

ions.

sate or allevbe easily ideed in the abvernment in

might have b system thaneral our aper to cut the

a particular also happendistinguish bintroduced easures is nly presented

ation is whae all annouK, measuresch later (e.gnd spendingn and softenstructuring od therefore se three typ

ns that are al as further mthis reason w2011). We d

urally differs

ate the cou of the austeo interpret tty policies, iacross cound et al., 2008nia, Ireland a on an ad hhoc chang

that will have

exation of be

ncome relative

viate the imentified. In obsence of th

mid-2010 abeen introdut arguably approach hae public defperiod thatned in the abetween ch for austerityot considerd as tempo

at referencenced and is announceg. 2014). Theg cuts. One n the blow fof the tax abehaviour,

pes of phasiannounced measures inwe limit the

do not harm across cou

nterfactual erity measuhe “absencndexed acntries. Wher8) which areand Greece

hoc basis. Ines.

e the largest e

nefits and tax

e to income a


pact of othother countrhe budgetaand the poliuced by anare part of

as been to fficit, or stem may be pa

absence of tanges that y reasons. Inred as part o

orary.

e time periontroduced

ed at one pere are seve is to reduceor political fnd welfare particularlying is difficu will be reve

ntroduced (e changes th

monise the rentries.

scenario (i.res”) is critic

ce of the aucording to ureas the UK e changinge are not re Portugal a

effect, but onl

x thresholds. T

s a whole. Th

Empl


her measureries it is not sry crisis. In thicy change

ny governma new appfocus on ch

m its growth.art of some the fiscal cr were part on particular of the auste

od to considwithin a singoint (e.g. in

eral differene the risk of feasibility resystem. A th

y in the finanult. Furthermersed or ame.g. in Greehat we anaeference pe

.e. “what wcal to the evusterity meausual practihas long-es

g (Joyce anegularly indend Spain th

ly over time, i

This is likely to

e effect of thi



es. In any caso clear howhe UK, for e

es include, ent, cuts anroach, somanges that . Some of thother policyrisis are not of a “busine the removaerity packag

der for the cgle year. In 2010) may

nt rationales another (or

easons. Anohird might bncial markeore, it is pos

mended befoece, Irelandalyse to thoseriod for the

would have valuation o

asures” as thice (or law)stablished d Levell, 20exed and inere is a mix

s the decision

o have the eff

is is not evide


stribution 2011

7

ase, the w xample,

nd e under were he y

ess as al of ge if

hanges. other not be s for the r further)

other is be to ets. ssible ore

d and e e

f their he . Such

11), nstead x of

n to

ect of

nt in our

7

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Furthof th

Whic

In moin caincreon thbe ain taxpay

The ebe inrevencasebehaon thand for ain inceffecshowfully cservicand analysecti

Furthnot splaus

Mac

It is imausteincomthe dsize aonce

3 In th

there

ember 2011

hermore, in oe “austerity

ch measure

ost countrieash benefits eases in indihe welfare ollocated toxes that are(vii) cuts in p

eventual effnteractions. nue; increa

es) increasedavioural or mhe direct, fircontributionll countries

come tax anct of increasw, in broad acomprehences, taxes acuts in pubysis in this paons of this p

hermore, somufficient. Wsible approx

croeconom

mportant toerity measumes are adjdata were cand distribue unemploy

he UK, while p

is no figure fo

order to neuy package”

es can be

es austerity m and publicrect taxes; of househol households

e not straighpublic secto

fect on the For exampses in indired indexatiomacro-econrst round, efns. In additiexcept the nd social cosed employand approxnsive first-rouand expendlic sector emaper but we

paper.

me of the cWhere possib

ximations h

mic and sec

o note that ores on popujusted by so

collected antion of the e

yment increa

public sector in

or a specific p

utralise thei are also inc

simulated

measures tac pensions; ((iv) reductiods using thes (e.g. pure

htforward toor employm

public budle, reductio

ect taxes wiln of benefitnomic secofects of chaon to that, t UK.3 The effontributionsyer contribuximate termund analysis

ditures that amploymente return to c

changes areble, and espave been m

cond orde

our simulatioulations withource, in linend the “auseffects of thases and ot

nstitutions ha

pay cut that ca

r effect, pocluded in th

?

ake the form(ii) increasesons in publicem; (v) redu public goo

o allocate toment.

get will be tons in public

l result in incts. The overa

ond and thiranges in cathe effects fect of the p. Where pos

utions and dms, the addit

s would alsoare not strai. These meaconsider the

e difficult to pecially to mmade.

er effects

ons are effeh pre-crisis lae with actuasterity” yearhe austerity ther labour

ve had their b

an be simulate


licy changehe counterfa

m of some cs in direct tac services thuctions in puods like defeo household

the net effec sector paycreased inflall result willrd round effsh paymenof public sepay cut is mssible and re

draw on avational effecto include thightforwardasures are be implicatio

capture exmaintain cro

ectively meaabour markal changes r (see Table policies migmarket cha

budgets cut, a

ed in this exer

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es that are nactual scen

combinationaxes and cohat have anublic expenence spendds; (vi) cuts i

ect of these y will serve toation and h also depen

fects. In this ts and direc

ector pay cumeasured neelevant we

ailable prevt of indirect

he effects ofd to allocatebeyond the ons of leavin

xactly becaoss-country c

asuring the ket characte between th 1 below) bght be someanges due t

and pay rises a

rcise.



not considenario.

n of: (i) reduontributions;n indirect imditure that

ding) and incin public se

changes. To reduce tahence (in sond on any analysis wect personal uts are capet of any re also measuious researct tax increasf cuts in pube to househ scope of th

ng them out

ause our datcomparabi

effects of theristics. Marhe period wut nevertheewhat diffeto the crisis,

are certainly r


stribution 2011

8

ered part

uctions ; (iii)

mpact cannot creases ctor

There will ax ome

e focus taxes tured duction ure the ch to ses. A blic olds,

he t in later

ta are lity,

he rket when eless the rent directly

restricted,

8

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or indamp

This isexplamay incomsuchhoursin livireduthe saloneare nthou

The E

Our aentitlcontcontavailare ndatamaritinformuses

In thicounassumand

3. SWe fup todiffer

4 For i

8.1%

5 EUR

SILC a

6 A re

the el

has be

ember 2011

directly, havplified and fo

ssue is distinained abov induce secme losses m adverse chs or increaseng standardction in concope of thise, under thenot). Wider agh the latte

European t

analysis malements for ributory casribution liablable in the not simulatea, along withtal status). Smation.5 Re income co

s analysis, sontries (assummed not to that the co

imulatinocus on the

o mid-2011. rent across

instance, in G

in 2010.

OMOD is curr

as underlying d

cent study by

derly in two o

een thorough

ve been acor tax and c

nct from wheve, we do nocond order amay adapt thanges in ce their labods may retunsumption as paper whie assumptioaspects of t

er may argu

tax-benefi

kes use of E the househsh benefit ebilities on the underlying

ed (e.g. benh informatioSee Sutherlaesults for Irela

ncepts alig

ome adjustmed the sam happen – it

osts of comp

g the aue austerity m However, tcountries d

reece the une

rently subject

data, will be i

y Matsaganis e

of the countrie

ly researched

ccounted focontribution

ether our anot attempt and macrotheir behaviircumstanc

our supply inurn to live wand, potentich focuses

on of other tthe crisis beuably aggra

it model EU

EUROMOD, hold populaentitlementse basis of th datasets. Mnefits which on on other and (2007) aand are basned with th

ments for nme before at is implicitly

pliance are

usterity mmeasures imhe period inepending o

employment r

to a major up

ncluded by 20

et al. (2010) e

es examined h

d in the UK (se

or.4 We mighn increases t

nalysis captto do. More-economic iour in an ates. For insta other waysith their partially, a slow on the first things beingyond the a

avate the fo

UROMOD

which simuations of EU M

and directhe tax-beneMarket incom depend on personal/hoand Lietz ansed on SWITose of EURO

on-take-up and after thy assumed tzero.

measuresmplemented

n which auson many fac

rate for male w

pdating proce

012.

stimated that

here (Greece

ee for example


ht expect thto be damp

tures the fuleover, the a effects. Forttempt to c

ance, those s; young perents; reduc

wer recovery round effecg equal (eveusterity mea

ormer, at lea

lates tax liaMember Sta personal ta

efit rules in pmes and thn contributioousehold ch

nd MantovaTCH, the IrishOMOD (Cal

of certain be austerity m

that legal ru

s d after the 2sterity measctors (includ

workers aged

ss. All EU‐27 c

t the non take

and Spain) co

e Pudney et a

Empl


he effects opened some

l effects of tausterity mer example, hompensate able to ma

eople facingctions in incoy. These issucts of the auen when it iasures are igast to some

bilities and ates. EUROMaxes and soplace and ine taxes andon history) aharacteristic

ani (2007) foh tax-beneflan et al., 20

benefits6 aremeasures);

ules are univ

2008 economsures were inding the tim

30‐44 rose fr

countries in E

e‐up of means

ould be very ex

l., 2006).



f benefit cuewhat.

the crisis, wheasures themhouseholds

e, at least paay work longg drastic redome will leaes too are busterity meais clear thatgnored, eve extent.

benefit MOD simulaocial insurannformation d benefits ware taken frocs (e.g. age

or further fit model, w011).

e made for while tax ev

versally resp

mic downtuntroduced i

ming of the n

rom 3.5% in 20

UROMOD, us

s‐tested benef

xtensive. Non


stribution 2011

9

uts to be

hich, as mselves facing artly, for

ger ductions ad to beyond asures t they en

ates non-nce

which om the e and

which

all vasion is

pected

urn and is national

008 to

ing EU‐

fits for

n take‐up

9

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macGree

In eathe rethe EIrelanResopolicthe reand

We nchan

Eston

The cmearevensignifrelatiwas econtlike tthesepubli

The m

7 Mos

growt

than s

increa

smalle

leave

ember 2011

roeconomiece, 2010-11

Country Estonia Ireland Greece Spain Portugal UK

ach case thecent, pre-

EU-SILC/natind 2008 inc

ources Survecy simulationest of the creform scen

now providenges are giv

nia

crisis hit Estosures in ordnues and dficantly incrively small ceven increaributions anhe sale of Ce affect peoic sector inv

main policy

st importantly

th of average

salary growth

ased by more

er scale increa

for fathers.

c and budg1 for Spain a

Table 1: Su

Input dataNational SNational SNational SNational SEU-SILC 20FRS 2008/0

e level andcrisis, past. onal SILC, fome data f

ey data. In en year for thountries). Thnarios are si

e a summarven in Appe

onia in 2008 er to tackleecreasing e

reased in 20cuts by the eased furthernd indirect tCO2 quota aople individvestments a

changes th

y, in 2008 the

salary was inc

in recent yea

than 20%. An

ases took plac

getary reacand 2009-11

ummary of i

aset SILC 2008 SILC 2008 SILC 2007 SILC 2007 007 09

distributionFor Greeceor Estonia itfrom the naeach case mhe baseline hese incomemulated on

ry of policy endix 1.

and in 2009e the increaexpenditure006-08 followend of 2009r in April 200axes were i

and frontloadually is not and salaries/

hat are simu

indexation of

creased relativ

ars) – and, add

nother benefit

ce for the sub

ctions to the1 for Portuga

nput datase

Income refe2007 (annu2008 (curre2006 (annu2006 (annu2006 (annu2008/09 (cu

n of market i, Portugal a

t is 2007 incotional SILC amarket inco (to 2009 leves are then

n the same

changes in

9 the governsing budge

es. Pensions wing the ec9. In fact, th09. In contrancreased. T

ading of EU possible to /wages wer

ulated in thi

public pensio

ve to the cons

ditionally, the

t made notabl

sistence bene


e financial cal, Ireland a

ets and peri

erence perial) nt) al) al) al)

urrent)

incomes is dand Spain thome data frand for the

omes are upvels in Eston held constunderlying

each coun

nment startet deficit, bo and severaonomic boe flat rate e

ast, on the reThere were grants fromestablish.) Ore reduced

s paper are

ons was chang

sumer price in

flat rate elem

ly more gener

efit (i.e. social

Empl


risis): 2009 foand the UK

iod of analy

iod Auster2009 2009-12010 2010-12009-12009-1

drawn initiahis is 2006 inrom the nat UK it is 2008

pdated appia, 2010 in Gant and thedistributions

ntry. Further

ed introducoth by findinal cash beneom7, and th

element of pevenue sideadditional,

m the CohesOn the expe and public

e the followi

ged – the weig

ndex (which h

ment of public

rous was the p

assistance) an



or Estonia, 2(see Table 1

ysis

rity measure

11

11 11 11

lly from datcome datational SILC, 8/9 Family propriately tGreece ande counterfas of market

details on s

cing austeritng ways to iefits were hese faced public pense, social insu one-off mesion Fund. (Henditure sidec services cu

ng.

ght attached t

has been much

pensions was

parental bene

nd additional


stribution 2011

1

2010 for 1).

es

ta from a from for

to the d 2011 in ctual income.

specific

ty ncrease

ions urance

easures How e, ut.

to the

h lower

s

efit, while

childcare

0

Nove

In T R In P

Polictax a

The bsectopensaustechan

Irela

DurinevidegoveOctoincluis profor 202011

In bro

L T In C

b P

8 It is

house

basica

major

emplo

pensio

curren

9 Amo

cash s

sharp

order

non‐c

ember 2011

ncreased sohe suspensi

Reductions increase in tPublic secto

cy changes allowances,

base scenaor wages) asions in 2009erity measunges listed a

and

ng the summent, and a sernment to bober 2008. Inde the cha

ovided by p009, 2010 an) are theref

oad terms, t

owering inche introducncreased soCuts in all mbenefits9 Public secto

important to

ehold disposa

ally entails is t

rity of worker

oyers only) fro

ons. Therefor

nt pensions at

ong other thin

scheme of sub

focus the issu

to assess the

cash subsidisa

ocial insuranon of creditn income ta

the standardor pay cuts

which could the increas

rio for Estonand pension9 is also inclure. The refo

above.

mer of 2008,substantial dbring forwan order to c

anges introdpolicy for 200nd 2011 (anore include

these includ

come tax baction of a neocial insuranmeans-teste

or pay cuts

note that whi

ble income, it

that for those

s), the govern

om the first to

e, halting tem

t the expense

ngs, a cash ben

bsidisation of

ue of cash ver

e overall impac

tion (which m

nce contribted and emax deductiod rate of VA

d not be simse in the red

nia is the 200ns uprated tuded in the rm scenario

, signs of a wdeficit in therd the budg

capture the duced in this08. The aust

nnounced ined in the sco

de the follow

ands and reew income nce contribed and un

ile the suspen

t was a signific

who are enro

nment transfe

o the second p

mporarily such

e of future pen

nefit entitled

places in early

rsus non‐cash

ct of policy m

mitigates the im

utions (empmployee coons AT

mulated incduced rate

08 policy systo 2009 leve base scena

o is based o

weakening e public secget for 2009 full extent os budget. Thterity measun Decembeope of our s

wing.

eduction in levy utions (emp

niversal cas

nsion of credit

cant source of

olled in the 2n

rs one‐fifth of

pillar, hence r

h transfers has

nsions.

the Early Chil

y child care fo

provision of s

easures, we h

mpact of the c


ployer, empntributions t

clude cuts in of VAT and

stem with mels. Note thaario becausn this, while

of the Irish ector finance9 from its usuof austerity mhus, the preures introduer 2010 and study.

tax credits

ployee, self-h benefits

ted contributio

f additional re

nd pension pil

f the pension

educing the fu

s helped to fil

dcare Supplem

or children age

social support

have, exceptio

cut in the cash

Empl


ployee, self-eto the 2nd pe

n minor bend excises.

market incomat the increase it is not c

e additional

economy bes emergedual date (Demeasures it -crisis or preced in bud implement

-employed)and a free

ons did not af

evenue for the

lar (and by no

insurance con

unds available

l the hole in th

ment was rep

ed 3 years of

t (see e.g. Pau

onally, include

h payment).



employed) ension pillar

efits and in

me (exceptase in publiconsidered tly simulating

became mod. This prompecember) t is essential

e-austerity bgetary meated from Ja

eze in con

ffect current

e government

ow these are t

ntributions (p

e for current p

he finances of

laced by a new

age. This brin

ulus et al., 201

ed the value o


stribution 2011

1

r8

minor

t public c to be an g the

ore pted the o to

baseline asures nuary

ntributory

t. What it

the

paid by

public

f the

w, non‐

gs into

10). In

of the

1

Nove

In addepoexerc

Gree

Afterevidedatarevisespreadeficand austewith Mone

The m

Inlota

T C P In

Chaas (m

10 The

reven

11 A th

applic

applic

from €

reduc

individ

was le

supple

excise

benef

perso

is curr

servan

ember 2011

ddition thereosit interest cise becaus

ece

r a decade ent in Octo

a had been ed to 15.4%ads on Greecit, the govea tax reformerity packagthe Europeaetary Fund.

main policy

ncrease in ower bandsax base he introduc

Cuts in publiPublic sectoncreases in

nges not cminor) redu

e revenue imp

nue over that p

hird package o

cation of the in

cable from 20

€12,000 to €5

ced) and tax cr

duals with inc

evied on self‐e

ementary pen

e duties on he

fits were raise

ons owning co

rently under c

nts are planne

e were somin the periose of data li

of fast growber 2009, w misreported

% and 126.8%ek bonds anernment anm in April 20ge was annan Commis 11

changes th

top incoms), changes

ction of a onic pensions

or pay cuts the standa

captured inuctions in t

pact was mode

period).

of austerity m

nterim financ

11but not cap

5,000. All tax a

redits were re

come exceedi

employed and

nsions were re

eating petrole

ed. In Septemb

mmercial or r

consideration

ed to be place

e minor chaod 2009-201imitations.10

wth, the undwhen the inc

d. The fisca% of GDP rend by lowernounced a10. When th

nounced in ssion, the Eu

hat are simu

e tax ratess in tax cred

ne-off addit

rd and redu

n our simultax credits.

est (e.g. indire

measures was a

ial strategy fr

ptured in our s

allowances we

educed by 50%

ng €12,000 an

d liberal profe

educed. Large

um were also

ber, the gover

residential pro

by the Supre

ed on partial p

anges to ind1 which hav0

derlying wecoming govl deficit and

espectively. ring credit ra first packa

hese failed May 2010 a

uropean Ce

ulated in thi

s (partly codits and allo

tional tax on

uced rates o

ations incl.

ect taxes cont

announced in

ramework for

simulations, i

ere abolished

%. A special co

nd an annual e

essions. Pensio

e property tax

increased. So

rnment annou

operty, to be p

me Administr

pay by the end


direct taxesve not been

akness of thvernment and public deb Financial matings. Aimige of austeto placate

as part of thentral Bank a

s paper are

ompensatedowances a

n incomes a

of VAT

ude increa

tributing not m

June 2011 (k

the period 20

nclude a redu

(except the c

ontribution of

entrepreneur

oners’ solidar

x, vehicle tax, V

ocial insurance

unced the intr

paid via electr

rative Court. F

d of 2011.

Empl


and an incn simulated

he Greek ecnnounced tbt estimate

markets reacing to reduc

erity measurthe marketse negotiate

and the Inte

e as follows:

d by decrend broade

and a speci

ases in exc

more than 10%

known as “Urg

012‐2015”). Th

uction of the in

child tax allow

f 1% to 5% wa

ship duty of €

ity contributio

VAT for restau

e contribution

roduction of a

ricity bills. An

Finally, approx



crease in the in the prese

conomy wathat earlier fs for 2009 w

cted by incrce the publes in Marchs, a seconded rescue pernational

easing tax rning of the

ial tax on pe

ise duties a

% of the incre

gent measures

he measures,

ncome tax‐fre

wance which w

as imposed on

€300 to €500 p

on was raised

urant services

ns for unempl

a new propert

appeal agains

ximately 30,00


stribution 2011

1

e tax on ent

as made fiscal

were reasing ic

h 2010, d package

rates for income

ensions

as well

ease

s for the

ee bracket

was

n

per year

and

s and

loyment

ty tax on

st this law

00 civil

2

Nove

Spai

In respackEuropwerefiscaaime

The f

T C F In P

In adand dow

Portu

We cbetwpolic

Ine

Fu

In P

In adand e

Unite

We cexcluthe p(whicinclu

12 The

unem

mortg

of cha

ember 2011

in

sponse to thkage in 2008pean Comm

e introducedl stimulus (w

ed to reduc

following po

he introducCuts in, and reezing of pncrease in tPublic secto

ddition thereexcise dutien their bene

ugal

consider as ween 2009 acy decisions

ncrease in earners, andreezing of n

unemploymncrease in tPublic secto

ddition thereexcise duties

ed Kingdom

consider meude some mpolitical deach tend to rding them b

e 2008‐09 fisca

mployment ins

gage moratori

arge, as well a

he econom8-09.12 In 20mission dued. Among o

which in this e public ex

olicy chang

ction of add freezing of,public pensithe standard

or pay cuts

e were the fes were increfits and tax

austerity meand 2011 tha taken to re

income taxd reduction nearly all inent assistan

the standardor pay cuts

e were the f were increa

m

easures intromeasures thal made in freduce tax both in the

al stimulus inc

urance and un

ium for the un

as various othe

ic crisis, the010, as a res to its increa

other things, analysis arependiture b

es have be

ditional inco, cash beneions d rate of VA

following mreased andx credits.

easures tax at were pre

educe the b

x rates, intr of tax cred

nsurance bence, family bd rate of VA

following meased.

oduced in that were dueforming the revenue or base (“pre

cluded a new

nemployment

nemployed, th

er measures.

Spanish goponse to prasing budge, the 2010-1e not considby €15 billion

en simulate

ome tax rateefits

AT

easures thad some regio

and benefesented by tbudget defic

roduction odits enefits and benefit andAT

easures that

he period be to happe 2010 coalit increase sp austerity”) a

benefit for jo

t assistance b

he right to ext


overnment iressures fromet deficit, a1 austerity m

dered as pan.

ed.

es for top ea

at are not simonal govern

fit changes the Portugucit. They inc

of an addit

pensions ad social assis

are not sim

between Apn anyway otion governmpending) froand in the r

obless workers

enefits, a new

tend the dura

Empl


ntroduced m financial set of auste

measures paart of austeri

arners

mulated: VAnments elim

and pay cuuese governclude:

ional incom

nd reductiostance.

mulated here

pril 2009 andor were introment. We e

om the comreform scen

s who have ex

w personal tax

tion of mortg



a fiscal stimmarkets anderity measuartly reverseity measure

AT reducedinated or sc

uts introducnment as ex

me tax rate

on of mean

e: VAT reduc

d June 2011oduced as pexclude thesmparison by nario (“post

xhausted

x credit, a part

gage by two ye


stribution 2011

1

mulus d the res

ed the es) and

d rates caled-

ed xplicit

e for top

ns-tested

ced rates

. These part of se

tial

ears free

3

Nove

austebudg

It shoend havenot d

The mas fo

In T

a C In F

Othe

Cou

Our swith to thannointo t

Estonwage

Irelan

Gree

Spain

Portu

13 Thefor 3 requirthat wthan tsize ounlesschildrFor a Breweintrod

ember 2011

erity” whichget deficit.

ould be noteof the story

e a bigger edue to be im

main austerollows:

ncreased sohe introduc

allowance aCuts in somencrease in treezing of lo

er policy cha

nterfactua

simulations cthat under e pre-auste

ouncementthe law. The

nia: No indee growth)

nd: No inde

ece: No inde

n: No indexa

ugal: Indexa

ese include fremore years;rement for cowill reduce thethe Retail Pricof regular stats very disableren); reduce Hfull list and mer et al. (201duced 2009‐11

h is the 2011

ed that the . Further, su

effect on thomplemented

rity measure

ocial insuranction of an at high incoe cash benethe standardocal tax (Co

anges whic

al

compare tha “business

erity policy ss and public

ese indexati

exation exce

exation

exation

ation excep

ation of mos

eezing Child B removal of ouples in WTCe number of cces Index to ututory indexated; impose beHB awards by more detail s1) suggests th1.

system) in a

measures ibstantial meose with lowd until 2012

es introduce

nce contribadditional tmes efits and taxd rate of VAouncil Tax).

ch could not

he situation as usual” (cystem indexc finance pion assumpt

ept for pens

pt for pensio

st compone

Benefit rates iChild BenefitC from 16 to claimants by 2uprate all bention); limit coenefit cap of £10% for somsee Browne (2hat these cha

an effort to

ntroduced easures hav

wer incomes or later.13

ed between

utions (emptop income

x credits anAT

t be simulat

after the aucounterfactxed in the w

projections intions are the

sions (index

ons (indexed

ents by CPI a

n 2012 and 2t from higher24; reforms t20%; spendingnefits and moontributory Em£500 per weee groups on J2010; Appendanges have a


focus on th

by 2011 areve been ans than those

n 2009 and 2

ployee, self-e tax rate a

d increases

ted include

usterity meatual) scena

way that is un the counte following:

ed by a we

d by CPI)

at least (CP

2013 and the sr‐rate taxpayo the medicag cut on Counost tax/contribmployment ank per househobseeker’s Adix C). Analysmuch more r

Empl


hose designe

e already knnounced, w

e with highe

2011 which

-employed, nd withdraw

s in others

certain cut

asures haverio. This broa

usually assumtry concern

eighted ave

PI assumed)

savings crediters; increase al test for Disancil Tax Benefibutions (this wnd Support Alold (£350 perllowance for mis by Browneregressive eff



ed to reduc

nown not towhich are liker incomes,

are simulat

employer) wal of the p

ts in cash be

e been introadly correspmed in policed and/or i

erage of CP

t part of Pensin the work

ability Living Ait; use of the will tend to rellowance to 1r week if singlmore than 12 and Levell (2fect than the


stribution 2011

1

ce the

o be the kely to but are

ted are

personal

enefits.

oduced ponds cy is written

I and

ion Credit king hours Allowance CPI rather educe the 12 months le with no 2 months . 2010) and measures

4

Nove

UK: In2011index

In som(indethe cAppe

4. TWe canalycontcorrecredoutlinincreare n

Secopropimpaaffecanaly

Finalmea

Size

The e2. Mecomtake6% inthe reand

Comtypes

14 Sinc

size o

conso

15 Cha

only r

ember 2011

ndexation a; Annex C). xed.

me cases thexed) actuachanges weendix 1.

he effecconsider a nyse the size ributions pa

esponding tited contribned above eases at thisnot able to c

ondly, the efportional redact on at riskcted by emysis.

ly, we showsures analy

and comp

extent and easured as pare the scn together v

n Estonia anelative imporeductions

mparing acros of measur

ce more auste

f the measure

olidation, thro

anges in credit

relevant in Est

according t Mainly by p

he counterfal policy systere not relat

cts of ausnumber of d and comp

aid by worketax and conbutions, all o and in the A point becacalculate th

ffects on hoductions in ink of povertyployer or cr

w the effect sed in this p

position of

compositioa percenta

cale across cvaries from d betweenortance of tin credited

oss countriere varies gre

erity measure

es shown in th

ough the types

ted contributi

tonia and the

o statute orprices; some

factual scentem beforeted to auste

sterity medifferent typosition of thers (employntribution reof which caAppendix. W

ause our infohe effects o

ousehold disncome acroy rates. Sincredited con

of the VAT ipaper, as a

austerity p

n of the “auage of pre-acountries), f about 2% o 2% and 3%the differen contributio

es, we can seatly. Pay c

s are in the pi

he figure shou

s of policy sho

ions are only

UK.

r assumptione compone

nario that is the austerit

erity. These e

easures pes of effecthe changes yees and seeductions) an be simulaWe do not iormation onon fiscal con

sposable incoss the incoe household

ntributions, c

increase byproportion

packages

usterity pacausterity totafiscal consoof disposabl% in Greece,nt types of mns.15

see that theuts on publi

ipeline in som

uld not be inte

own, in each c

relevant for E


ns built into ents by earn

simulated dty measuresexceptions

ts, using var to cash belf-employed

and also emated with EUinclude the n this is derivnsolidation i

come are come distribud disposabl

changes in t

y expressingof househo

kages” anaal disposab

olidation as e income in, Spain and

measure, inc

e relative imic sector wo

me of the coun

erpreted as in

country.

stonia. Chang

Empl


official fiscanings; some

departs soms were intro are noted a

rious measuenefits, incomd), public p

mployer conUROMOD, w effects of inved from otin a consiste

considered,ution and thle income isthese are n

g it, togetheld disposab

alysed here le income (a result of thn the UK to 8 Portugal.14 cluding emp

portance oorkers (net o

ntries, but not

dicating the r

ges in employe



al projectio componen

mewhat fromoduced if soabove and

res. First, weme taxes anay cuts (netributions an

with the excendirect tax ther studies ent way.

first, in termen in terms s not directlot included

r with the oble income.

is shown in (in order to hese measu8% in Ireland Figure 2 alsployer cont

of the differeof taxes and

t others, the a

relative extent

er contributio


stribution 2011

1

ns (OBR, nts not

m the ome of

in

e nd t of nd eptions

and we

ms of the of the y

d in this

ther

Figure

ures d. It is so shows tributions

ent d

aggregate

t of fiscal

ons are

5

Nove

contpercof thimpoIncomIrelantotal aftercollereforreducounless im

Figuredispo

Source

Note: in indnumbtotal h

Figurdispoaffecand

16 Inco

% o

f dis

po

sab

le in

com

e

ember 2011

ributions) arent of total e net overa

ortant in Irelame tax incrend, Portuga disposabler the austeri

ected from pm of the incction in tax

ntries, particmportant in

e 2 Aggregaosable incom

e: EUROMOD v

The austerity mirect tax, cutsers shown on t

household disp

re 3 shows hosable incoct the relevathat reduct

omes are equ

-1

0

1

2

3

4

5

6

7

8

9

Pub

Ben

re substanti household

all effect shoand (only oeases consi

al and Spaine income. In

ty measurepensions whcome tax sc revenue. O

cularly in Ireln aggregate

ate effect ofme, by type o

version F4.19 a

measures inclus in public serthe chart are t

posable incom

how the ausme.16 Note ant employtions in cred

ivalised using

6.2

EE

blic sector p

nefits and pe

al in Ireland disposableown in Figurn workers), iderably in a

n, where the Greece incs. This is to ahich were rechedule, as

Overall, expeland, Greece in Estonia

f simulated f policy

and SWITCH

uded here arervices and somthe aggregate

me in each cou

sterity meas that here w

yees’ incomdited contrib

g the modified

8.1

IE

ay (net) W

ensions E

d, Greece ae income anre 2. Increas Estonia andall countriese increases come tax aa small exteeduced. Bu part of theenditure once and Portand the UK

austerity me

limited to thome minor tax-e net increase untry.

ures are diswe assume tes rather thbutions affe

d OECD scale.

2.2

EL

Worker SIC

Employer SI


and Spain, and, in the cases in sociald the UK (wos (except Gare equival

and employent due to tat it is mainly austerity pa

n benefits antugal. Benef.

easures as a

se that can be-benefit chan in the public b

stributed by that increasan on profit

ect current i

2.7

ES

IC

Empl


amounting tase of Gree insurance corkers and e

Greece), andlent to moreee contribu

axes and coy due to theackage, itsend pensionsfit and pens

a percentag

e simulated wiges (see text)budgetary ba

deciles of eses in emplots or prices ncomes rat

3.0

PT

Income ta

Credited



to betweence, more thcontributionemployers).d particulare than 1 peutions decreontributions e fact that thelf lead to as is reducedsion reducti

e of total h

ith EUROMOD.) are not incllance as a pro

equivalised oyer contribor wages gther than pe

1.9

UK

axes

SICs


stribution 2011

1

n 1 and 2 han half ns are . rly in rcent of

ease he a d in all ons are

ousehold

. Increases uded. The

oportion of

butions enerally

ension

6

Nove

incomwith consis onlincomwoulbetwdue uppe

Neveis noteach

Figurtermpay c(maiincom

In thedistribThe rcuts.acrotax aSpainempwhic

17 The

the pi

18 Bro

skewe

ember 2011

mes in the fthis in mind

solidation is ly to be expme in eachd pay more

ween 24% (into employeer half of the

ertheless, tht negligible.h contribute

re 3 also shos of the comcuts is concnly pensionme tax cha

e UK, the efbution whilereductions in In Spain, Poss the distrib

are larger fon). In Estonialoyee contrh comes fro

e effects of the

icture relative

owne and Leve

ed to the top

future. Neith.17 On this bassumed by

pected since country, so

e. In particun Spain) ander and credie income d

e contributi. That is espe about 6%

ows a breakmponents shcentrated ins) are more

anges and it

fect of incree the increan the middlortugal andbution, whileor richer deca, where theribution incrom the top

ese changes a

ely straightforw

ell (2010) show

one percent.

her are realibasis, in all cy higher ince the richer

o even if taxular, we findd 54% (in thited contribistribution ra

ion of lowerecially evidof the overa

kdown of thhown in Figun the upper e equally sprt is only in th

eases in conase of income and botto

d Ireland, bee the effectciles (there ae main effereases, incopart of the

are shown at t

ward.

w the large in

This is confirm

stic assumpcountries, a come houser householdxes were lev that the rice UK) of the

butions. The anges from

r income hoent in Portuall burden.

e contributure 2. Here part of incoread. Most

he top decil

ntributions sme tax only om of the denefits and ts of public ware no chan

ect is from pome tax and distribution

the top of the

crease in tax

med by our ow


ptions and Flarger prop

eholds than s have a dis

vied at a unchest 10% ofe overall incshare effec 70% in Port

ouseholds tougal, where

ion made bwe can seeome distribuincome groe group tha

shows up foaffects the

distribution apensions hawage cuts nges to socay related

d public wa. The effect

bars in Figure

in the top dec

wn analysis, n

Empl


Figure 3 shouortion of the lower incomsproportion

niform rate, tf the popula

creased burctively paid ugal to 93%

o the fiscal c the poores

by each by e that in Greution, while oups actualat the tax b

r the upper very top of

are almost aave an effeand the incial insurancelements: e

age cuts, a h from benef

e 3, to make f

cile group in t

ot reported h



uld be intere fiscal me househoate share othese houseation accourden includi by those in

% in Greece

consolidatiot three dec

decile groueece, the e cuts in benly benefit frourden rises.

r half of the f the distribuall due to bect at all poi

crease of ince contribut

employer anhigher sharefit cuts is ne

factoring them

he UK is itself

ere.


stribution 2011

1

preted

olds. This of total eholds unts for ing that the .

on effort ciles

up, in ffect of efits om the

ution.18 enefit ints come ions in nd e of

egligible.

m out of

f heavily

7

N

F

Nbios

S

-

November 2011

Figure 3 Relative c

Notes: The austeritybenefit changes (sen employer contribof this Figure. Decilescale to adjust inco

Source: EUROMOD

-2002040

poore

23456789rches

Employ

-10

0

10

20

30

40

50

60

poorest 2 3

-10

0

10

20

30

40

50

60

poorest 2 3

contribution to fis

y measures includedee text) are not incbutions are incidentes are based on eq

omes for household

version F4.19 and S

9riches

yer SIC W

4 5 6 7

Spain

4 5 6 7

Estonia

scal consolidation

d here are limited tcluded. In Estonia ret on the relevant emquivalised disposab size.

SWITCH.

Worker SIC

-10

0

10

20

30

40

50

60

8 9 richest

-1

1

2

3

4

5

6

8 9 richest

n by type of auste

to those that can beductions in creditemployees and redu

ble income in the c

Income taxe

0

0

0

0

0

0

0

0

poorest 2 3 4

P

0

0

0

0

0

0

50

0

poorest 2 3 4

erity measure, by

be simulated with Eed contributions areuctions in credited counterfactual (befo

s Benefit

5 6 7 8

Portugal

4 5 6 7 8

Ireland

y income decile g

UROMOD. Increasee included with incrcontributions affecore austerity) scena

ts and pensions

9 richest-10

0

10

20

30

40

50

60

po

-10

0

10

20

30

40

50

60

po9 richest

Social Situation

group

es in indirect tax, cureases in employer t current rather tha

ario and constructe

Public s

oorest 2 3 4

oorest 2 3 4

Gr

Employ

n Observatory – Living Conditi

uts in public servicecontributions. It is a

an future incomes, ped using the modifie

ector pay (net)

5 6 7 8

UK

5 6 7 8

reece

European Commisyment, Social Affairs and Inclu

ions and Income Distribution

es and some minor assumed that increapurely for the purpoed OECD equivale

9 richest

9 richest

ssion usion

2011

18

tax-ases oses nce

Nove

Distri

Althoexpepay iincomequit4 shocauseffecshowdistribincomat thincomconcPortuare cThe ogrou

Figure

Notes:disposto emtax-becountincom

Source

-12

-10

-8

-6

-4

-2

0

%

ember 2011

ibutional e

ough better ected, and iis also largeme groups, table or not

ows the avesed by the acts of changw that the rebution in Estme). In the Ue top. The dme is larger centrated inugal is the oconsiderablyopposite is thps and thos

e 4 Percenta

: The austeritysable income ployer or cred

enefit changeterfactual (bef

mes for househo

e: EUROMOD v

2

0

8

6

4

2

0

poorest

effects on h

off househot does not sr. The share therefore, tet. In order torage propo

austerity meges to emploeduction in intonia and SpUK the effecdistribution is at the botto

n the middlenly country y larger in thhe case in Gse at the bo

ge change in

y measures in(changes to d

dited contributes (see text) afore austerity) sold size.

version F4.19 a

2 3

household

olds pay a lasignify that t of the totalells us nothin

o account foortional chanasures that oyer and crncome duepain (i.e. eact is also fairs more unevom as well a

e decile grouwith a clear

he first and sGreece, whttom pay re

n household

ncluded here direct taxes, caions. In additio

are not includescenario and c

and SWITCH.

3 4

EE IE

incomes

arger share,he burden o cost of the ng about wor the greatenge in househave a dire

redited conte to the mea

ch decile grly uniform uven in Irelanas, more espups, have hrly regressivesecond decere percent

elatively little

disposable i

are limited tash benefits anon, increases ined. Deciles arconstructed us

5

EL

income de


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ect bearing tributions arasures is relagroups pays

p to the 9th d where thepecially, at tad their ince distribution

cile groups ttages losses

e.

ncome due t

to those that nd public sectn indirect tax, cre based on esing the modif

6 7

ES P

ecile

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above this is sures in relatpaid by highdistribution opay of riche

osable incomon househore not includatively flat ac roughly thedecile grou

e proportionthe top. Penome relativn, with perchan higher s are largest

to austerity m

have a director pay). They cuts in public sequivalised disfied OECD equ

8

PT UK



only to be tion to their her and loweof the cost iser householdme by decileold income. ded here. Thcross the inc same prop

up, but mucnal reductionsioners, whely well prot

centage lossup the distrit for the top

measures

ct effect on do not includeservices and sosposable incouivalence scale

9 riche


stribution 2011

1

ability to er s ds Figure e group The

he results come

portion of h larger n in o are tected. ses that bution. decile

household e changes ome minor

ome in the e to adjust

est

9

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Figurby thand partiPortuindichouseffecEston

The pand contthe Udecithe fidistribincomtax cgrou

Finaldistribstronredubecaincom

It is adifferincomhouscontmorecounwith the inelderGreeof ththat reduhous

ember 2011

re 5 distinguhe three macontributioncularly large

ugal, Irelandcating that t

eholds but ct is relativenia and the

pattern of thto a lesser eribution inc

UK but concle group is dirst decile gbution, in Spme distribut

changes, esp, that the

ly, public sebution in allgest effect ction - i.e. tause they eme groups w

also of intererent types ome by decieholds withaining elde

e proportionntries housechildren thancome distrrly is particu

ece childrene distributioparticularlyce a child teholds acro

uishes the prain types of ns, and those effect on d and Spainthe pensionare mainly ly small and UK.

he distributioextent in Poreases are l

centrated indue to the froup and th

pain it desction most afpecially in ttax burden

ector pay cu the countr in Ireland. (hey take acarn less – wwhere taxe

est to underof householdle group on

h children (derly people (nately, regaholds with oat tend to loribution. In Eularly strikingn are relativ

on. These eff affect childtax credit oross the inco

roportional change: thse in public households

n. Interesting cuts do noconcentrat

d similar acr

on of tax anrtugal the rearger in the

n the top defreezing of lohen relativeribes a U-shffected. In Gthe middle o rises.

uts have a lies where th(These are sccount of th

which probas are highe

rstand how d. Figure 6 cn the whole defined as a(defined as

ardless of theolder peopleose more, aEstonia the cg, especiallyvely well-profects are padren or elder a pension.

ome distribut

effect on hoose in bene sector pays in the lowegly, results aot have mucted in the upross the bott

nd contribueductions in

e upper parecile group.ocal tax.) W

ely flat and dape with ho

Greece, moof the distrib

arger effechese apply,shown net ohe fact thatbly explainsr.)

the burdencompares th population

aged under aged 65 oreir position ie lose less th

although in Pcontrast bey towards thotected, espartly due to erly people:. They are ations.


ousehold inefits and pe. Cuts to beer part of th

are different ch effect onpper middletom two thi

tion changen disposablert of the dist. (The reduc

While in Estodeclining inouseholds in

ost people abution, and

ct in the upp but the gra

of taxes andt the emplos why the ef

of the austhe proportio

n (as in Figurr 18) and (br more). In Gin the incomhan all housPortugal this

etween the he bottom opecially tow decisions a: for examp

also partly d

Empl


ncome in eansions, thos

enefits and phe income d in the case

n the income part of therds of incom

es is quite de income dribution. The

ction in tax inia, the red the top han the upperactually gai it is only in

per part of tadient varied contributiooyees conceffect is not s

terity measuonal changre 4) with th) people in

Greece this me distributiseholds ands only applieposition of cof the incomwards the mabout tax anle choices oriven by the



ach decile gse in incomepensions hadistribution ie of Greece

me of poorere distributiome distributi

different. In Idue to tax ae same appn the botto

duction is larlf of the r middle pan from the ithe top dec

he income es, with the ons on the erned pay lestronger in t

ures is sharege in disposahat on (a) p households latter groupion. In the od it is househes at the bochildren and

me distributiiddle and bnd benefit cover whethee compositio


stribution 2011

2

group e taxes ave a n

e, r n. The ion in

Ireland nd

plies in m rger in

rt of the ncome cile

ess tax the top

d across able eople in s p loses other five holds ottom of d the on. In

bottom changes er to on of

20

Nove

Figuremeas

Notes:disposto emtax-becountincom

Source

-9%-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%

-9%-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%

-9%-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%

ember 2011

e 5 Percentasure


enefit changeterfactual (bef

mes for househo

e: EUROMOD v

EE

Chan

EE

Changes

EE

Pu

poorest 2

age change i


dited contributes (see text) afore austerity) sold size.

version F4.19 a

IE EL

nges to benef

IE EL

s to income t

IE EL

ublic sector p

2 3 4

in household


are not includescenario and c

and SWITCH.

ES

fits and pens

ES

ax and work

ES

pay cuts (net

5 6 7

d disposable

are limited tash benefits anon, increases ined. Deciles arconstructed us

PT UK

sions

PT UK

er SICs

PT UK

t)

8 9 rich


income due

to those that nd public sectn indirect tax, cre based on esing the modif

est

Empl


e to austerity

have a director pay). They cuts in public sequivalised disfied OECD equ



y measures b

ct effect on do not includeservices and sosposable incouivalence scale


stribution 2011

2

by type of

household e changes ome minor

ome in the e to adjust

21

N

F

Namca

S

November 2011

Figure 6 Percenta

Notes: The austerityand public sector pminor tax-benefit cconstructed using tas all those aged 65

Source: EUROMOD

-400.0

-200.0

0.0

200.0

-6

-5

-4

-3

-2

-1

0

poorest 2 3

-4

-3

-2

-1

0

poorest 2 3

age change in ho

y measures includedpay). They do not inhanges (see text) a

the modified OECD5 or more. The char

version F4.19 and S

%

%

%

%

4 5 6 7 8

Estonia

4 5 6 7 8

Spain

ousehold disposab

d here are limited tnclude changes toare not included. D

D equivalence scalerts are drawn to diff

SWITCH.

All

9 richest-13-12-11-10-9-8-7-6-5-4-3-2-10123

poores

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

poores9 richest

ble income due t

to those that have o employer or crediDeciles are based oe to adjust incomesferent scales, but th

UK

With child

st 2 3 4 5 6

Ireland

st 2 3 4 5 6

Portugal

to austerity measu

a direct effect on hited contributions. Ion equivalised disps for household size

he interval between

ren

7 8 9 richest

7 8 9 richest

l

ures: by type of h

household disposabIn addition, increas

posable income in te. Children are definn gridlines on each

With elderly peo

-4

-3

-2

-1

0

1

poorest 2 3

-5

-4

-3

-2

-1

0

1

poorest 2 3

Social Situation

household

ble income (changses in indirect tax, cthe counterfactual ned as those agedof them is the same

ple

4 5 6 7 8

UK

4 5 6 7 8

Greece

Employ


ges to direct taxes, cuts in public servic (before austerity) s

d under 18 and “elde.

9 richest

9 richest



2

cash benefits ces and some scenario and derly people”

ssion usion

2011

22

Nove

Risk

The e60% oincomrise, iwith reduin terremathresthe sin Irepointchildamoextenmost

Table

Risk Risk Perc ChaPovPerc

Notes:disposto emtax-bepeoplOECDcount

Source

Not saustemealittle i

ember 2011

of poverty

effect of auof the medime at the bif a fixed pomedian incctions in therms of relatiaining the sashold and oame as befland (3.7 pet in the othe

dren at risk ring the worknt in Estoniat in Portugal

e 2: Risk of po

of poverty of poverty centage po

ange in medverty rate afcentage po


enefit changele in the releva

D equivalence terfactual (pre

e: EUROMOD v

surprisingly, erity measusures have in all countr

y

sterity meaian, depend

bottom of thoverty threshcome (i.e. toe middle of ve poverty ame). Tablene that fallsfore, the proercentage per countriesses consideking age po

a and Spainl, Greece a

overty rates b

rate before rate after (foint change

dian equivafter (relativeoint change


dited contributes (see text) aant group with scale. The fixe-austerity), sce

version F4.19 a

median eqres. If the pobeen impories, except

sures on theds on how the income dhold is usedo decline as the distribu risk after thee 2 shows ths as incomeoportion at points) and. In all coun

erably, espeopulation es. The propond Spain an

before and af

e fixed thresh

e in risk of po

alised income threshold) e in risk of po


are not includh equivalised hed threshold isenario.

and SWITCH.

uivalised incoverty line issed, overal

t Portugal. B

e risk of povthis effect is distributions . However, s median in

ution shown e austerity me change i

e is reduced risk of pove Portugal (2

ntries, excepecially in Irelspecially in

ortion of oldnd actually

fter the introd

old) overty rate

All 0-17

18-64 65+

me (%) overty rate

All 0-17

18-64 65+

are limited tash benefits anon, increases ined. Risk of pohousehold incs calculated u

come declis recalculatl risk of pove

By age grou


verty, define calculated we might eif the povercome decli in Figure 4, measures arn poverty ri

d and confirerty rises in e2.0) but by lept Greece aand. The ris Ireland ander people a falls a little

duction of au

EE IE15.3 12.416.2 16.0

relative to b1.0 3.72.2 5.00.8 3.80.1 -0.7

-2.9 -7.614.9 11.9

relative to b-0.4 -0.51.0 -0.4

-0.1 -0.2-3.2 -1.9

to those that nd public sectn indirect tax, coverty rates a

come below 60using equivalise

ines in all coted on the berty rates ar

up, increase

Empl


ed as havingd. Given theexpect the rrty thresholdines), and g it is not cleare introducesk using botrms that keeeach countress than on

and the UK, k of poverty

d Portugal aat risk increa in Ireland.

usterity measu

E EL E4 20.4 180 21.1 19base scena7 0.7 10 0.3 18 0.6 07 1.3 16 -1.2 -29 20.3 18base scena5 -0.1 -04 -0.6 -02 -0.2 -09 0.7 -0

have a director pay). They cuts in public s

are calculated0% of the meded disposable

ountries as abasis of the re broadly u

es in the risk



g income be reduction risk of poved is allowedgiven the incar what to eed (other thth a fixed peping the thry. It does soe percenta the proporty also increaand to a lessases by less,

ures

ES PT .6 18.5 1.6 20.5 1rio by age .0 2.0 .2 3.2 -.9 1.4 .1 2.8 .7 -2.0 -.3 19.6 1rio by age .3 1.1 -.2 2.5 -.1 0.8 -.8 1.0 -ct effect on do not includeservices and so

d as the percdian, using the

e income in th

a result of th median aftunchangedof poverty a


stribution 2011

2

elow in rty to to shift come expect hings overty

hreshold o most

age tion of ases ser but

UK 6.6 6.6

0.0 -0.5 0.0 0.4

-0.8 6.1

-0.4 -1.1 -0.3 -0.2 household e changes ome minor entage of

e modified e base, or

he ter the

d or fall a among

23

Nove

thosein the

Indir

In sommodexpesize a

Usingby inin preprophaveBudg

In Estincrethe inincrefind twhergrouare, ffor th

The c(dire

19 TheUK: B2005/quinti

20 The

2012.

21 Loo

house

effect

22 The

how it

by tho

spend

other

ember 2011

e of workinge risk of pov

rect taxes

me of the cel in detail

enditure). Hoand inciden

g external income decie-tax relativ

portion of dise been estimget survey (D

tonia and Sease was 2.5ncrease in t

eases to thethat in eachre the extrap and 2.7% for Estonia:

he UK: 2.2%

combined ect taxes, be

e studies usedBarnard (2010/06 Householile group. VAT

ere were no su

oking at the ef

ehold income

t at the bottom

e relative degr

t relates to co

ose on low inc

ding is much h

countries, bu

g age and tverty among

countries the(because Eowever, drance of the e

nformation fle group an

ve prices, wesposable incmated fromDecoster et

pain the ma5 percentagthe main rat reduced rah of the cou tax represe in the top q 1.5% and 1and 1.2%.22

effect of theenefits and

d are, respect0). For Portugd Budget SurT was calculat

ubstantial cha

ffect of taxes p

can distort th

m of the incom

ree of regress

onsumption p

comes) and (b

higher than inc

ut to a letter e

the elderly ag the elderly

ere have alsUROMOD’s

awing on oteffect of inc

for Estonia, Pnd assuminge have estimcome.19 For a previous t al., 2010; M

ain VAT ratege points; inte was 4 peates. Assumuntries, the eents almost quintile grou.1%; for Spa

2

e VAT increapensions, a

tively, for Estoal we carriedrvey on the ded based on t

anges to VAT i

paid on the ba

he view of the

me distributio

ivity across co

atterns (i.e. th

b) the effectiv

come in the lo

extent.

are notabley in Estonia

so been ch input data

ther researcreases in VA

Portugal, Spg that theremated the ir Greece, th study using

Matsaganis

e increasedn Portugal itercentage ping the increffect is reg5.6% of houup. The corr

ain: 1.4% and

ase and of tnd public se

onia: Vork et out our owndistribution othe most usua

n Ireland in th

asis of record

regressivity o

on. See Brown

ountries is due

he extent to w

e savings rate

ower income


e in Portuga and Ireland

anges to inbase (EU-SI

ch, it is possiAT across th

pain and the was no chaincrease in he effects og micro-dataand Levent

by two pert was 3 percpoints, plus 1reases havegressive.21 Thusehold incoresponding d 1.1%, for P

the changeector pay) i

al. (2008), fon approximatiof expenditural VAT rate ap

he relevant pe

ed spending p

or otherwise o

ne and Levell (

e to (a) differe

which goods w

e across the in

decile groups

Empl


l as is the sud.

direct taxesLC) does noble give an

he income d

e UK on theange in prestandard ra

of changes ia from a Grti, 2011).20

rcentage pcentage po1 and 2 pere a proportiohis is most clome in the b figures for tPortugal: 1.4

es simulatedis shown in F

or Spain: Serraons based one by COICOPplying to each

eriod, althoug

patterns as a p

of indirect tax

(2010).

ences in the st

with lower tax

ncome distribu

. The same te



ubstantial re

s that we caot include d indication

distribution.

e incidence e-tax expenate VAT as ain all rates oreek Househ

oints; in theoints and in Grcentage poonal incideearly so in Gbottom quinthe other co4% and 1.0%

d with EUROFigure 7 (da

ano (2001) ann informationP categories bh spending ca

gh it is due to

proportion of

xes, and espec

tructure of VA

rates are con

ution. For Gre

ends to apply i


stribution 2011

2

eduction

annot data on of the

of VAT diture or

a of VAT hold

e UK the Greece oint nce, we Greece ntile ountries % and

OMOD ashed

nd for the from the by income tegory.

rise in

recorded

cially the

AT and

nsumed

eece,

in the

24

Nove

line),Givefirm cregrewe mand low invery rises igrousimilaincre

In a tcontof thempreduempcomespepropuppe

On thon homakeOn thwhilequitethe Vare apublithe e

23 Not

two d

incom

are bo

indire

theref

24 Bro

ember 2011

contrastedn the approconclusionsessiveness omight draw the UK the pncomes is n strongly prois transformps in particu

ar in scale toeases).

third step wribution creese effects hasised is octions in creloyees in qubined mea

ecially in Estoportion of hoer incomes.

he one hanow comprees definitivehe other hae EUROMODe precisely, oVAT changeable to carric sector pa

effects of cu

te that by com

data sources a

me and the sam

ound to be so

ect taxes that

fore.

owne and Leve

d with the efoximations a. Neverthele

of the increaabout the dproportion o

now increasogressive naed into a U-ular. The peo those for t

we add the eedits (dotted (see above

open to queedits to futuuestion wousures in the onia where ousehold inc

nd the fact tehensively the statementand, our estiD simulates tour assump

es are necery out on theay. Even mouts in public

mbining the re

re the same B

me equivalenc

me difference

we use for Sp

ell (2010) also

ffect of the and the assess, in all fiv

ased VAT acdistributionaof income ced relative

ature of the -shaped pic

ercentage lothe Irish low

effects of ind lines), make). If these aestion – addure pensionsuld have the two countr the size of tcome, to a

that the sizehe analysis its about themates of ththe size of t

ptions aboutssarily quitee incidenceore tentativec services, w

esults in this w

Both sets of ca

ce scale. How

es in the comp

pain is more th

o find these ef

income chumptions ae countries cross the incal effects of contributed to the cont Greek meacture involviosses amon

w income po

creased emking further,assumptionsing these in

s to the othee effect of inries where ththe effect islevel similar

e and distribis able to co

e relative effhe effects ofhe changet the inciden

e tentative ce of changee would be

which are dis

way we assum

alculations use

wever, the fact

position of the

han 10 years o

ffects for the U


hanges alonbout incide where VATcome distrib the austerit

d to the austtribution by asures beforing large los

ng the low inopulation (w

mployer con, strong assus are valid – ncreases to er current loncreasing thhey apply (s large, bringr to that in Ir

bution of theover all the fects of ausf VAT increas to employnce of thescompared wes to direct t an analysisscussed in t

e that the com

e a very simila

t that differen

e income dec

old. Our result

UK changes in

Empl


ne (as in Figuence madeT rates werebution affecty measuresterity measu those on hire includingsses for the ncome Greewhere there

ntributions aumptions ab and this, it employer c

osses experiehe progressEstonia andging the “loreland for th

e combined relevant austerity acrosases are apyer and crede, as well awith the pretaxes, cash s that attemhe next sec

mposition of t

ar concept of

t surveys are

iles. In particu

ts should be v

n indirect taxe



ure 4: solid l, we canno raised, the

cts the concs. In Spain, Eures by thosgh incomes

g the effect bottom twoek populati are no VAT

and reducebout the incshould be

costs and enced by thsivity of the d the UK) anoss”, in termshose on mid

d effect depusterity meas countries proximate. dited contris the incide

ecise analys benefits an

mpted to incction.

the decile gro

household dis

used means t

ular the study

viewed with ca

s.


stribution 2011

2

ine).23 ot draw

clusions Estonia se on s. 24 The of VAT o decile on are T

d cidence

he

nd s of a

ddle-

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26

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25 See

ember 2011

s in public s

fiscal squeecting essentces have ancient incomeffects of suparable pic

ntry. While th publicly-fun

been addreprehensiveler research

dence of redt be made aton, 2011). Inernment dere these cha

UK governmexpenditureracteristics. roportionatece provisiongly on wheic expenditexample) thertheless, it i

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ing remahe economionly becausecause howacroeconof pathways nequality of are. Insteadg aside the

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and Reed (201

ermined theervices andn living stane the publiculd provide consequenncorporatinh care, childent work (sees of service strong assuspending wbenefits frolittle is know

are being traervice provis

analysis (H.Mcan plausibld Preston (20econd and he distributiossumes that he same val in proportioing that theat of taxes a

g standards n this paper

arks c crisis and se inequalit

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y from cuts ine of these c

10).

e proper fun the “socialdards eithe

c service wie a more conces of austng the distribd care, socee Paulus ete is not possmptions. Ind

would be com the non-c

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M. Treasury,y be alloca011; Figure 8 third quintilonal effect cuts in spenlue to eachon to income scale of thand benefit that is suggr is not the e

austerity onty, and any of the crisis isery and fina

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macroeconn spending

complex issu


nding of thel wage”. Cu

er directly, oth private c

omprehensivterity measubutional effial care, edt al., 2010), sible withoudeed, the c

onsiderable,cash service

ow cuts mado cuts in speexperienced

2010; Anneated to hous8.2) show thles of the di of expendinding on th

h member ome (Joyce ahe effect of ts (in the UKgested by thend of the s

n inequality driver of gros distributedncial stabilitnalysis presenor does it ccts of austercts on incomomic and p on public sues at the n

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ctor, adverseing on publfor those whn. Accountirefore more seholds in eial benefits ic.) into EURO

hese methodntial amountof modellingassumptions place (O’D

evel of a ces, and wh

s about a thcording to tll f income ins a whole deg two-thirdsation of wh2011).25

cuts has beehe effect of of the tax, b

at current matters in its

ations for ths the politicas paper is noaspects of es on houseity from labo

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stribution 2011

2

ely lic ho have ing for

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en benefit

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27

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26 Rais

But th

ember 2011

saganis and1) for Ireland

mportant ton though the the overall getary retrect control ant instrumentening living the distribubenefit cha

dence is cleaacts of tax-bs who is suffh any such erity measu

Except in Poa larger probenefit cutsausterity on across incommuch biggeower middlhose in the

Adding the he burden

distribution (n all countrion older peocase in Irelancomes in Pat each poinn all countrichildren thaat low incomchildren in measures apayments fodisposable iare better o

sing VAT and

hese too are r

d Leventi (20d and Joyc

o assess andeir effects m impact of t

enchment pnd can makts in terms o standards

utional propanges as wear (assumin

benefit chanfering most pain may hres. With tha

ortugal and oportion of t

than the b disposableme decile ger effect rige income bottom decapproximanow largerFig. 7). The ies that we ople than ond and in EPortugal. In nt in the incies, except n those with

mes) and alsthe bottom

as a wholeor children.ncome thaff than befo

cutting spend

elatively blun

011) for Gree and Sibie

d compare tmay in somethe crisis. Throcess are oke choices.f their distriband growinerties of the

ell as publicg no evasionges can b because ohave been at in mind w

Estonia, higtheir incombottom dec

e income is groups in Esht at the togroups, whcile group),te effect o

r at the botregressive e analyse, ex

on the popuEstonia but d Greece, p

come distrib Greece, thhout (Fig. 6)so in Portug

m 20% of te because In Greece

an others, riore in the th

ding on service

t instruments

eece, Brandta (2011) an

the effects oe cases be shis is becausone arena i Macro-eco

butional effeng budget de austerity m pay cuts a

on or avoidae fine-tunedf the crisis, itexacerbate

we can con

gh income e to publiccile group clearly and

stonia and Sop, also prohere pensio and clearlyf VAT increttom and theffect is simixcept Greeulation in gedoes not ap

pensions arebution. he measures). This applie

gal at low lethe distribu of counte

e householdght across

hird and fou

es may be see

s in terms of t


olini et al. (2nd Brewer e

of austerity small and/ose the policiin which goonomic andects. In the deficits, govmeasures thre sharp ins

ance take pd.26 Therefot does allowed or mitigaclude the fo

householdsc pay cuts, (Fig. 4). The

d strongly reSpain, mildl

ogressive in oners are cy and strongases changhe top thanilar but less sce, the aus

eneral (Fig. 6pply at low

e not protec

s have a laes particulaevels of inco

tion on aver-balancinds with childthe incomerth decile g

en as necessar

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2011) for Itaet al. (2011)

measures aor differ in diies put in pl

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s (top deciledirect tax i

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ome. In the verage do g increasedren tend e distributio

groups.

ry to generate

e.



aly, Nolan et for UK).

across counistributional ace as partcan exert s

arket policieng unemplotill have chooduce. Dire the sense t the distribur analysis doss the extency choices

om our analy

e group) concreases an of the bu Portugal, qve in the UKthough losseed, are lowsive in Gree

ape in Greeddle of the e UK and Spsures fall lessrticularly cle the UK or aace particu

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on and on a

e the required


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t al.

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wer than ece. ece, with income

pain. s heavily early the at higher ular cuts,

olds with matically olds with rom the

ns-tested s of their average

d revenue.

28

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27 Res

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ember 2011

Changes to hardest (Fig.where the lcontributionand the UK middle of thmiddle thann Greece tnvolves cutincluding a

and 5) has distribution dUsing a fixepoverty incrausterity meparticularly additional pparticular baverage (Ta

terpreting o

lating the eesented by effect in a ographic ally true, it is

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mployment and for soc

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have not tantries the sizebeen able

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benefits an. 5). This is stargest effes tend to af and but lehe distributio at the top.the choicets in taxes small cut i served to due to the ced poverty reases, espeeasures on in Estonia aprotection urden, risk

able 2).

ur analysis t

effects of thedata collecmid- (or pond labour mfar less so abution of incxample, if tha further re

bigger propo among prim

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ken accoune and distribto do this.

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nd which are c

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ect is in theffect those ess strongly on in Spain.

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there are so

e austerity mcted in 2007st-) recessio

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ate the effever-estimati

nt of tax evabution of th

nalysis does s. This is for tcountries ar

calibrated to p

similar to tho

ons and bereland and

e middle ofon high inc so in Portu while in Es

gressive refoon middle even if the

the fall in ihole (Matsathe effect eland and Ps with child

gal (and facomes). In y among o

ome caveat

measures on7 and 2008 on world. Ounges are norisis. To the enst which th income at ulting from

ect than shors has serioumean that w

ects of beneon might no

asion. In Gree tax chang

not includetwo reasonsre considera

post‐recession

se reported h


nefits tend in Portugalf the distribome the mo

ugal. The estonia it is g

orm to theincomes a

ere had bencomes fo

aganis and Lof the austPortugal. In ren, risk of lls a little in Greece, wlder people

ts to be bor

n the pre-re(Table 1) maur methodoot dramaticextent that he effects o the lower ethe impositi

own here. Fuus implicatiowe over-est

efit cuts in thot be large.

eece particges would b

e the impacs. First, the inable. Secon

n levels of em

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to hit those but does n

bution. Chaost. This is cffect is gre

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or those in Leventi, 201terity meas line with th poverty amn the UK wwhere oldee also rises

rne in mind.

ecession poay not accu

ology implic in the short these chan

of the austerend of the dion of austeurthermore,ons for the ttimate the ehe analysis h. 27

cularly and be somewh

ct of cuts in nformation rndly, given t

ployment and



on low inconot apply in anges to talearly true inatest in thehe bottom

ax schedules only at

er changes the middle1).

sures on thhe larger bumong childhere there er people by more

pulation as urately descitly assumest term. Whilenges alter thrity measuredistribution –erity measur, a sharp riseax base aneffects of tahere, thoug

in principle hat different

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stribution 2011

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ome the Greece

axes and n Ireland e upper-and the

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– Figs. 3 e of the

e risk of urden of

dren rises is some face a

than on

cribe s that e this is he es are – it res e in d

ax gh the

in all six t if we

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ent

29

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owne and R Commental Studies. ) The Impac2014-15 in N1920/bn.ifs.2P. Levell (201ed betwee

8 (doi: 10.19e C., Walsh JModelling usociety of Irelan, C. Keanof Tax Increaial Review, .Preston (20 8 in IFS Greughrey J., O

A microsimul& Managem

K) (2010) Spegov.uk/sr20. Reed (2010Statistics 10randolini, J. on of Houseone Rodolfoww.frdb.org/

Levell (2011ng Note 120

Sibieta (201eat Recessioan Conferenber. http://wevy, M. Matsonal effectstive”, Resea

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ributional ef0 and April 010.00108). Lane M. (2011008”, forthco

sh (2010) “InWelfare and 4, pp.461–47uring the dist2011 Londo

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28 Not

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pendix 1

nia

tax-benefit pss otherwise

ct taxes an

he increase June 2009 he increasehe suspens

pension pilla

efits and ta

he narrowinhe abolitionhe narrowinhe increase

lic sector p

Public secto

rect taxes (

tandard rat

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te that together

ures increasing

: Austeri

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nd contribu

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sable income in


2009-11

analysis are t

employment

and healthand emploecember 2

me tax child

care allowament insuran

ge in 2009).

% (in June 20

009-10 whic

tional child sickness be

enefit was nwing expensp fees (from

% (in June 20July 2009 an

11 are cove

ions to the 2nd

n Estonia.

Empl


the followin

t insurance

h insurance yee contri010)

d allowance

ance nce benefit

010)

ch are not si

dcare leavenefit and sarrowed. es: interest

m 1 January

010) nd January 2

ered in our a

pension pillar,



g (taking ef

contributio

contributiobutions to

e

(from 1 July

imulated:

e for fathseverance p

payments 2010)

2010)

analysis:

these are the o


stribution 2011

3

ffect,

ons (from

ns the 2nd

y 2009)28

ers and pay was

of study

only

33

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Twstm

TP(t

Sre6

InbteoonSb

TR

Tin

T(ppcn

Bene

Ttob

WIn2

Pre

Jsu

29 How

for tho

exceed

ember 2011

ct taxes an

he tranchewas reducedtandard rat

married couhe basic p

Precisely thethe “PAYE” pecial tax educed fro

65 were redunitially, a tembeen replacemporary le

on gross incor from depno allowancocial Char

balance.29 he ceiling

Related Soche rate of pncreased frohere were pension) co

purposes ancontributionnumber of re

efits and ta

he universao €172 per

being paid tWelfare payn subseque2010 and a fPayments toeduced. obseeker’s harply redu

unemployed

wever the rate i

ose aged 70 or

ds €100,000 in

nd contribu

e of incomed from €35,te band for

uples continpersonal taxe same redu tax credit) provisions m €325 to €uced from €mporary incced by a nevy and theome (beforosit income

ce, but incorge are: 2%

on employcial Insurancpay-relatedom 3% to 4% significant ontributions.nd similarlys. The uppestrictions o

ax credits

al Child Ben month for to welfare reyment rates nt years, pafurther 4% in

o those of pe

Assistance uced, by ad.

s capped at 4%

over. There is a

a year, regardle

utions

e taxed at 400 to €32,8r lone pareued to recex credit wauction appl

for the eld€245 while t€20,000 to €come levy wnew Univere pre-existinre pension c

e on which romes below % on the fir

yee and emce) was abod social insu% changes i. Until 2008,

y excluded per ceiling on the exten

nefit payme 3rd and higecipients as were increayments to n 2011. ension age

payment bout 25% f

% for those on lo

a surcharge of 3

ess of age.

the standa800. There wnts and for

eive a doubas reducedied to tax c

derly were the income€18,000 was introdursal Social Cg Health Ccontributionretention ta €4,004 per rst €10,036,

mployer socolished. urance cont

in the tax these had for the pon this reli

nt of the imp

ent was redgher order s part of the

eased in the those of wo

benefited f

rates for unfor those ag

ow incomes, wh

3% on individua


ard, 20% ratwas an equ one-earne

bled standad from €1,8credits for lo

scaled bae tax exemp

ced and thCharge (USontribution.ns). Incomeax (DIRT) has annum are 4% on the

cial insuran

tributions (P

treatment been excluurposes of ef from tax

plied tax reli

uced from children), w

eir welfare pe October 2orking age

from the ini

nemployed ged 22-24

ho qualify for th

als who have in

Empl


te (the “stauivalent €2,6er married card rate ban830 in 2008 one parents

ack: the aption limits f

hen increaseSC) which The new U from socias been paid

e exempt. The next €5,9

nce contrib

PRSI) for the

of employeuded from g calculatinxation wasief were intr

€166 to €14with a compayment. 2008 Budget were reduc

tial increase

people agand by 50%

he means‐teste

come from self



andard rate600 reductiocouples. Twond. to €1,650 and for em

ge tax creor those ag

ed. By 2011 replaced bSC is a tax

al welfare pad is exempthe rates of U80 and 7%

butions (PRS

self-employ

ee superangross incomg social in also very roduced

40 per monpensating i

t by a little ced by abo

e but were t

ged under % for the y

ed full medical c

f‐employment t


stribution 2011

3

e band”) on in the o-earner

in 2011. mployees

edit was ged over

this had both this payable ayments . There is Universal

% on the

SI – Pay-

yed was

nnuation e for tax

nsurance high. A

nth (€203 increase

over 3%. out 4% in

then not

25 were youngest

card, and

that

34

Nove

Fo

Aap

Publ

Inmmdth1seim

Bsaa

This psalarsalar

In adbut h

Ain

Tp

Gree

The m

Direc

Ino

Tinfo

Intap

Tay

ember 2011

amily Incomof the rate oA cash benannum, wasplaces in ea

lic sector p

n early 2009make an admore commdeduction whe first €15,0% and theector pay wmplicit salarBudget 201alaries as fo

and 10% on

produced ories up to €1ries up to €2

ddition therehave not be

A new carbndirect taxehe tax on d

period by ab

ece

main policy

ct taxes an

ntroductionover €100,00he structurencluding a or annual inntroductionax rates risin

pensions exche tax base

and contribyear.

me Supplemof wage gronefit entitleds abolished

arly child ca

pay

9, emergendditional “p

monly referrewas about 7000 of inco

e balance awithout a rery cut. 0, announcollows: 5% o the next €5

overall reduc25,000. Red

200,000 and

e are the foeen simulate

bon tax waes. deposit interbout 5 perc

changes th

nd contribu

of a one-o00. e of personpersonal all

ncomes ove of ‘Pensionng from 3%ceeding €3,e was exteutory disab

ment (FIS – aowth. d the Early and replacre for childr

ncy legislatipay relateded to as th7-8 per centome was zeat 10.5%. Th

eduction in

ced late inon the first €55,000 of sal

ctions in salductions ran 15% on sala

llowing chaed in the pr

as introduce

rest (DIRT – dcentage poi

hat are simu

utions

off (retrospe

nal income lowance of

er €100,000. ners’ Solida

% for pension,500 per mo

ended to inbility benefit

an in-work b

Childcare ced by a nren aged 3

ion was end deductione public set of salary, b

ero-rated, thhis was widnominal sal

n 2009, im€30,000 of sary.

aries ranginnging from 8aries of €200

anges that hesent exerc

ed, and th

deposit inteints up to 27

ulated in thi

ective) tax a

tax was maf €12,000 pe rity Contribns between

onth. Pensioclude unems for individ


benefit) wa

Supplemennew, non-cayears of ag

nacted requn” in respeervice pensibut the struhe next €5,0ely seen aslary levels, a

plemented salary, 7.5%

ng from 5% t8% on salari0,000 or mo

have taken cise becaus

ere were s

erest retentio7 per cent.

s paper we

at 1% of pe

ade more per year, and

ution’, i.e. an €1,400 anons below €1mployment duals with ta

Empl


as increased

nt, with a vash schemee.

uiring publicct of their ion levy). Thcture was s000 at 5%, as an attempand is frequ

reductions% on the ne

to just undees of up to

ore were als

place in the of data lim

ome minor

on tax) was

ere as follow

ersonal annu

progressived an increas

a special tad €1,700 pe1,400 per m benefits, laaxable inco



d somewha

value of €1e of subsidis

c sector wopensions (Phe averagestrongly proa further €2pt to reducuently treate

s in publicext €40,000 o

er 8% in the c€165,000, 12o implemen

e period 20mitations:

r changes

increased

ws:

ual incomes

: nine tax bsed top rate

ax on pensioer month toonth are ex

arge family ome over €3


stribution 2011

3

t ahead

,100 per sation of

orkers to PRD, but e rate of gressive:

20,000 at e public ed as an

service of salary

case of 2% on nted.

009-2011

to other

over the

s in 2009

brackets, e of 45%

ons, with o 10% for xempt. benefits 30,000 a

35

Nove

Bene

Tvrefa

Trare

Inoinrep

Publ

Twb

P S

gub

Indir

In(i

In ad

Direc

Cmta

Indir

E T

Spai

The 2

30 High

ember 2011

efits and ta

he 13th andvacation alloeceiving a armers’ basax allowanaised (to €1espectivelynstallation oof the relevnsurance celevant exp

persons and

lic sector p

he 13th andwere abolishbe paid to pPublic sectopecial allow

graduate stuutilities emplbase pay, ha

rect taxes (

ncreases in increased fr

ddition there

ct taxes an

Charitable dmade a taxaxable inco

rect taxes

Excise duty oaxes on luxu

in

2010-11 aus

h‐court judges e

ax credits

d 14th montowances topension be

sic pensionsces and ta

1,500, €3,00.

of eco-friendvant expencontributionspenditure u

d €480 for m

pay

d 14th salarihed. In theirpublic sectoor wages cawances paiudies and hloyees, whoad the latte

(in Figure 7

the standarom 4.4% to

e were the f

nd contribu

donations tx credit at 2ome. The ho

on tobaccoury items up

terity measu

excepted. This e

thly pensionotalling €800elow €2,500s are excludax credits (f0 and €11,5

dly energy sditure up ts tax allowup to a maarried coup

es hitherto r place, flator workers eaapped at €5id to civil sehard & arduose special er cut by 10%

7 only)

ard rate of o 5.5% and 9

following m

utions

tax allowan20% of the

ousehold ex

o, alcohol ap by 20%.

ures that ar

exception is no

n payments0 a year wil

0 per monthded (i.e. confrom 1 Janu500 per ann

systems tax to a maxim

wance was aximum tax

ples.

paid to civ-rate vacatarning less t

5,981 a monervants weruous occupallowances%.

VAT from 19% to 11%).

easures tha

nce, previo relevant expenses tax

nd fuel incr

e simulated

ot simulated.


s were abol be paid to

h. Invalidity ntinue to beuary 2010). num for tax

allowancemum tax cr

also madex credit of

vil servants tion allowanthan €3,000

nth30. e reduced pation allows other than

9% to 23%

at are not sim

usly availabxpenditure, credit was

reased by 3

d include:

Empl


olished. In tho pensioners pensions, se paid 14 tim The child x units with

was madeedit of €60e a tax cre €240 annu

and publicnces totallin per month

by 20%. Fawances wern family allo

and in the

mulated he

ble at the , and cappabolished.

30%.



heir place, s aged 60 asocial pensimes a year)tax allowan1, 2 and 3

e a tax cred00 annuallyedit at 20%ually for un

c utilities emng €1,000 a .

mily, seniorire excluded

owances are

reduced ra

ere:

marginal raped at 10%


stribution 2011

3

flat-rate and over ons and . nce was children

it at 20% . Private

% of the nmarried

mployees year will

ity, post-d. Public e part of

ates also

ate, was of total

36

Nove

Direc

A€

Fe

Bene

E P F

a T

P R M

Publ

C

Indir

F

In ad

Fm

Sa

Portu

The 2

Direc

In A

ta R

2inre

R

Bene

Fw

F(i

ember 2011

ct taxes an

Addition of €120,000 andlat tax rate

euro per yea

efits and ta

Elimination oPension freereeze of Ind

and unemplightening o

Program (ProReduction oMeans-testin

lic sector p

Civil servants

rect taxes (

rom July 20

ddition there

rom July 2maintained ome region

and tax cred

ugal

2009-11 aus

ct taxes an

ncreasing taAdding a neax rate from

Replacing t2011) to the n 2010 (€47eference in

Reducing th

efits and ta

reezing, bewhich is the reezing, beincluding pe

nd contribu

two tax brd €175,000,

e on capitaar and 21%

ax credits

of universal eze for 2011,dicator for sloyment insof the eligiograma Tem

of child beneng of the €4

pay

s’ pay cut u

(in Figure 7

10, the stan

e were the f

2010, reducat 4%.

nal governmdits.

terity measu

nd contribu

ax rates by ew bracket

m 42% to 46.he referenc social bene75), whatevdicator.

he pension t

ax credits

etween 2009 base for mo

etween 2010ensions).

utions

rackets for and at 45%

al income (above that

birth grant f, except for social beneurance andibility condmporal de Pefit for child

400 persona

up to 9.7% (5

7 only)

ndard rate o

following m

ced VAT ra

ments have

ures that ar

utions

1 and 1.5 pt for income.5%. ce indicatoefit index (€ver is large

tax allowan

9 and 2011ost social be0 and 2011

top earne% for annual18%) replact limit.

from Janua minimum a

efits (IPREM) d assistanceitions to th

Protección dren aged 0

l tax credit

5% in avera

of VAT incre

easures tha

ate also inc

eliminated

e simulated

ercentage es above €

or for tax c€419.22 in 20er, while m

ce.

, the nominenefits. , the nomin


rs (at 44% l incomes oced with tw

ry 2011. and non-co in 2011. The

e benefits arhe Temporapor Desemp

0 to 2 from €from 2010.

age) in 2010

eased from

at are not sim

creased fro

or reforme

d include:

points depe€ 153,300 pe

credits from011) or the a

maintaining

nal value o

nal value o

Empl


for annual ver €175,00

wo tax ban

ntributory pe income tere based in ary Unemplpleo e Inser€500 to €291

; pay freeze

16% to 18%.

mulated he

om 7% to 8

ed (scaled-d

ending on ier year, inc

the minimamount of the same

f the socia

f benefits n



incomes b0). ds 19% up

pensions. ests of child this indicatloyment Prrción) 1, in 2011.

e in 2011.

.

ere:

8%. Base ra

down) their

ncome levecreasing the

mum wage the minimuproportions

l benefit ind

not linked to


stribution 2011

3

between

to 6,000

d benefit or. otection

ate was

benefits

el. e highest

(€485 in m wage s of the

dex (SBI)

o the SBI

37

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re

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C

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F

In ad

F6

Unite

The 2

Direc

Ap

In A

£ F

a

Bene

Wfa

In R W

n 3

T B C C R

m F D

b N

g

ember 2011

Reducing threezing, beeducing the

lic sector p

Cutting the p

rect taxes (

rom Januar

ddition there

rom Janua6% (before t

ed Kingdom

2009-11 aus

ct taxes an

An increasepercentagentroductionAbatement £100,000 perreezing of C

austerity me

efits and ta

Withdrawingamilies at ancreasing thRemoving thWorking Taxnominal term30-hours addax benefit (

Basic amounChildcare adChild BenefitReal increasmitigate somreezing of s

Deductions by the CPI inNon-continugovernment

he amount aetween 201e generosity

pay

pay of civil

(Figure 7 o

ry 2011, the

e were the f

ry 2011, thehe austerity

m

terity measu

nd contribu

e in 2011 ie point.

of a 50% ta of the per year from Council Tax

easures.

ax credits

g the family faster rate he rate at whe baby elex Credit (WTms dition in WT(CTB) also frnt of WTC/Cddition to Wt rates frozeses in the c

me of the cusavings credfrom benef

n 2011 (prevuation of tht.

and tighten10 and 20y of the imp

servants up

only)

standard ra

following m

e reduced Vy measures

ures that ar

utions

in all emp

ax band on rsonal allow2010.

x (local taxa

y element and from a

which tax crement of theTC)/CTC firs

C frozen; 30rozen in 201CTC frozen iWTC reduceen in 2011. child elemeuts in suppodit maximumfit (Income viously frozee Winter Fu

ing the elig11, the no

plicit equiva

p to 10%.

ate of VAT w

easures tha

VAT rate wathese were

e simulated

ployees’ an

incomes ovwance by

ation) in 201

of the Chia lower thresredits are wie CTC in 20st threshold

0-hours disre1. n 2011.

ed from 80%

nt of the Cort for childrem payments Support, Hn in nomina

uel Allowan


ibility condiominal valu

lence scale

was raised f

at are not sim

as increased 12% and 5%

d include:

nd employe

ver £150,000£1 in every

1, intended

ld Tax Credshold than pithdrawn in 11. frozen and

egard in Ho

% of costs to

Child Tax Cren, for low is within PenB and CTB)

al terms) nce addition

Empl


itions to fame of the b

e of social a

from 20% to

mulated he

d to 13% an%, respectiv

ers contribu

0 per year iny £2 of tax

d to mitigat

dit (CTC) frpreviously (i 2011 from 3

d second th

ousing Bene

70% in 2011

edit in Aprincome fam

nsion Credit ) for non-de

ns introduc



mily benefit. basic amou

assistance.

o 23%.

ere:

nd the basevely).

ution rates

n 2011. xable incom

e the effec

rom highern 2011).

39% to 41%.

hreshold red

fit (HB) and

1.

l 2011 (intemilies) in 2011. ependents

ed by the


stribution 2011

3

unt and

e rate to

of one

me over

cts of the

r-income

duced in

Council

nded to

uprated

previous

38

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Indir

Tfram

This liausteWe limea

Apwthth

Inte

Rp

W2PCst

In2

Bene

Cintapc

Hpthremwto

ember 2011

rect taxes (

he standardrom 17.5% t

adopted in tmeasure.

ist excludeserity measust them belsures

An increase per year in 2was offset bhresholds ohe deal struncreases in erm agend

Real increasprevious GoWTC payab2011; abovePension in 2CTB from £6tate incomen addition t2011 but hav

efits and ta

Changes to ncreases in ax credit p

payments. circumstancHousing benpercentile ohere will beents will be

more than Lworking ageo single-roo

(in Figure 7

d rate of VAto 15% as pthis paper, o

some chanres. These aow, togethe

to the inco2011. This am

by a reductin contribut

uck by the p the lower la to align inses in the cvernment’s

ble to peope inflation in2010; an inc6000 to £10,es for pensiothere are thve not been

ax credits

the way in income of

payments aAlso, claim

ces more qunefit reformof local rene caps on t capped aLHA levels we living in soom levels for

7 only)

AT was increpart of the eonly the inc

nges introduare includeder with the j

ome tax pemounted toion in the thtions, to targpolitical parimits for em

ncome tax achild eleme strategy to

ple aged 60ncreases to crease in th,000 in 2010oners).

he followingn simulated

n which in-ymore than nd falls in i

mants will uickly.

m: Local Honts rather ththe total am

at the 4-bedwill be remocial housinr single peo

eased from earlier stimucrease from

uced in the d in both thejustification

rsonal allowo a 10.4% rehreshold to get the taxties forming

mployee anand social c

ent of the Co reduce ch0+ if they wthe Pension

he lower ca0 for pensio

g changes t in the prese

ear change£10,000 (ratincome of have to i

using Allowhan the 50mount of redroom rateoved. Hous

ng that is unple aged 2


15% to 20%ulus measure 17.5% to 20

period 2009e base and for not cou

wance for theal increase

the higher x cut on stag the coalitiod employercontributionChild Tax Crhild poverty)work more tn Credit guaapital threshon-age peo

hat have taent exercise

es are madther than £2up to £2,50inform HM

wance (LHAth percenti

ent that ca. The existinsing benefitnder-occup5-35.

Empl


%. This followes so acco

0% is conside

9-11 that ar the reform

unting them

hose aged over the twrate of inco

andard rateon governmr contributio

n thresholdsredit in Apr). than 16 hoarantee crehold in Pensople (part o

aken place e because o

de to tax cre25,000) in A00 will not RC about

A) rates will ile. Irrespecn be claim

ng disregardt will be red

pied. Finally,



wed a VAT rerding to theered as an

re judged to in our simul as austerity

under 65 bwo year perome tax ane taxpayers ment in 2010ons (part of). ril 2010 (pa

urs per weedit and Basion Credit,of a restruct

in the perioof data limit

edit awardspril 2011 wilincrease ta changes

be set at tctive of loc

med under Ld of rent upduced for , LHA will be


stribution 2011

3

eduction e criteria austerity

o be not lations. y

by £1,000 riod and

nd upper (part of

0). f a long-

rt of the

ek, from sic State HB and turing of

od 2009-tations.

s so that l reduce

ax credit in their

the 30th cal rents, LHA and p to 15% those of e limited

39

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