Abstract
This paper explores the effects of tax and benefit systems on differences in income and incentives to earn income within couples in nine member countries of the European Union. The comparative perspective allows us to establish the relative effects of different policy regimes, given the characteristics of each national population, using a consistent approach and set of incidence assumptions across countries. We find variation in the extent of within-couple equalizing across countries and depending on whether the man or the woman has the larger market income. We find no evidence of tax-benefit systems reducing income differences at the expense of increasing disparities in work incentives within couples.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
“Benefit” is here used in its European sense of a cash transfer from the state. It is a term that includes contributory earnings replacement insurance payments, payments to compensate for contingencies such as disability, payments to support children and families, means-tested social assistance or welfare payments, and “in-work” subsidies of low earnings.
For more information see Sutherland [2007], Lietz and Mantovani [2007], and www.iser.essex.ac.uk/research/euromod.
While these systems are sometimes not very recent, one purpose of this paper is to develop an approach that can be used in the future for the timely assessment of policy changes. We return to this point in the conclusion.
Private transfers mainly consist of maintenance and alimony payments.
One alternative way of allocating joint tax would be to assume that each individual would pay the amount equivalent to the individual taxation minus an equal share of the “joint taxation benefit” (i.e. what they save from being taxed jointly). Typically what happens in practice is that each individual pays some amount of withholding tax deducted at source (usually from earnings and, in some cases, other income sources) during the year. Then there is an end-of-year retrospective reconciliation that involves some refund or extra payment. How this is transferred into or out of the household and how it is shared within the household depends on many factors, not least the mode of tax administration. Indeed, arguably it may be income after withholding tax that is critical to the day-to-day situation within the household. What actually happens at the end-of-year adjustment stage when sometimes significant rebalancing must take place would be an interesting matter for study.
Other direct taxes at the household level (such as the Council Tax in the UK) are split equally between the members of the couple.
The combination of an equal split for benefit payments and no sharing of market income falls in between the usual complete sharing assumption and the opposite extreme of assuming that all income is retained by those who receive it. The latter allocation rule has been used by Sutherland [1997] for the UK and Fritzell [1999] for Sweden. It would be interesting to explore the implications of this approach in comparative perspective. However, this is not straightforward for two reasons. First, detailed national knowledge about the payment of benefits in each country would be required, and this complex information is not easy to obtain on a comparable basis. Secondly, in a comparative context the issues raised by the incidence of joint taxation — not relevant in the UK or Sweden — would need to be resolved.
The effects of non-cash benefits, labor market, and child-care policies that may have an effect on decisions about paid work but are not included in standard measures of disposable income are therefore disregarded in our analysis.
In particular, the exclusion of old-age pension recipients implies a reduction of our samples beyond that implied by the age group selection. This effect is larger in countries where early retirement schemes are common: 11 percent of couples are excluded for this reason in Finland, 8 percent in Austria, 7 percent in France, Germany, and Italy, 6 percent in Greece, 3 percent in the UK, and 2 percent in Portugal.
The fact that the average female share is higher than the average share of the lower-income partner reflects that there is a minority of couples in all countries where the woman receives the higher share.
The unweighted sample size of couples with the woman having the higher share is small in some countries (73 couples in Austria, 922 in Finland, 813 in France, 473 in Germany, 208 in Greece, 316 in Italy, 262 in the Netherlands, 281 in Portugal, and 456 in the UK). The results, especially for Austria, should therefore be treated with caution.
Of course countries also vary in the extent to which the group we consider — working age couples — pay taxes or receive benefits relative to other groups in the population.
Cohabiting non-married couples in Portugal may opt to be treated as married for tax purposes. As it is jointly advantageous for them to do so, we assume that all non-married couples are taxed as though married.
Our definition of means tested benefits refers to all benefits that depend on an assessment of current income. It includes all benefits with an earnings or income test, even if the limit does not confine entitlement to those on low incomes as such. Similarly, benefits that are more generous to people with low income than to people with high income are included in the means tested category. See the appendix for a detailed classification of benefits analyzed here into those that are, and are not, means-tested.
This is because of the taxation of imputed income (i.e. cadastral income) related to second homes whose owners, in most of the cases, are men regardless of their income. The inclusion of this income component in the taxable income of the lower-income partner reduces the equalizing effect of the tax-benefit system or indeed has a dis-equalizing effect in some cases.
This analysis shares some of the issues associated with decomposing the distributional properties of taxes and benefits systems across the income distribution (rather than within couples). For a discussion of these issues, as well as empirical analyses using EUROMOD, see Immervoll et al. [2006] and Bargain [2009].
Arguably, this refund could also be classified as a benefit.
See Immervoll and Sutherland [2005] for more detail about calculations of this type.
When calculating work incentive indicators, the samples used in the analysis are further reduced to only include couples where both are in current paid work. Those who have any receipt of out-of-work benefits or earnings below a low threshold (€30 per month) are excluded on the basis that they probably were only working part of the year. The reduced samples include 54 percent of the selected couples in Austria, 49 percent in Finland, 54 percent in France, 59 percent in Germany, 33 percent in Greece, 46 percent in Italy, 59 percent in the Netherlands, 63 percent in Portugal, and 59 percent in the UK. Data limitations mean that we are unable to distinguish the effects of working longer hours and for higher rates of pay.
References
Apps, Patricia, and Ray Rees . 2008. Public Economics and the Household. Cambridge: Cambridge University Press.
Bargain, Olivier . 2009. The Distributional Effects of Tax-Benefit Policies under New Labour: A Shapley Decomposition, EUROMOD Working Paper EM2/09.
Bonke, Jens, and Martin Browning . 2009. The Distribution of Financial Well-Being and Income within the Household. Review of Economics of the Household, 7 (1): 31–42.
Ermisch, John, and Chiara Pronzato . 2008. Intra-Household Allocation of Resources: Inferences from Non-Resident Fathers’ Child Support Payments. The Economic Journal, 118 (527): 347–362.
Esping-Andersen, Gøsta . 1990. The Three Worlds of Welfare Capitalism. Oxford: Polity Press.
Ferrera, Maurizio . 1996. The “Southern Model” of Welfare in Social Europe. Journal of European Social Policy, 6 (1): 17–37.
Fritzell, Johan . 1999. Incorporating Gender Inequality into Income Distribution Research. International Journal of Social Welfare, 8 (1): 56–66.
Iacovou, Maria . 2004. Patterns of Family Living, in Social Europe. Living Standards and Welfare States, edited by Richard Berthoud and Maria Iacovou. Cheltenham: Edward Elgar.
Immervoll, Herwig, Henrik Jacobsen Kleven, Claus Thustrup Kreiner, and Emmanuel Saez . 2007. Welfare Reform in European Countries: A Microsimulation Analysis. The Economic Journal, 117 (516): 1–44.
Immervoll, Herwig, Henrik Jacobsen Kleven, Claus Thustrup Kreiner, and Nicolaj Verdelin . 2009. An Evaluation of the Tax-Transfer Treatment of Married Couples in European Countries, IZA Discussion Paper No. 3965, Bonn.
Immervoll, Herwig, and Holly Sutherland . 2005. EUROMOD: An Integrated European Tax-Benefit Model and Indicators of Work Incentives, in Indicators and Policies to Make Work Pay, edited by Giuseppe Carone and Aino Salomäki. Special Report No 2. Brussels: Office for Official Publications of the EC.
Immervoll, Herwig, Horacio Levy, Christine Lietz, Daniela Mantovani, Cathal O’Donoghue, Holly Sutherland, and Gerlinde Verbist . 2006. Household Incomes and Redistribution in the European Union: Quantifying the Equalising Properties of Taxes and Benefits, in The Distributional Effects of Government Spending and Taxation, edited by Dimitri B. Papadimitiou. Basingstoke: Palgrave Macmillan.
Jenkins, Stephen P . 1995. Accounting for Inequality Trends: Decomposition Analyses for the UK, 1971–86. Economica, 62: 29–63.
Lietz, Christine, and Daniela Mantovani . 2007. A Short Introduction to EUROMOD: An Integrated European Tax-Benefit Model, in Micro-Simulation in Action: Policy Analysis in Europe using EUROMOD, edited by Olivier Bargain. Research in Labor Economics, Volume 25. Oxford: Elsevier.
O’Donoghue, Cathal, and Holly Sutherland . 1999. Accounting for the Family in European Income Tax Systems. Cambridge Journal of Economics, 23: 565–598.
Pahl, Jan . 2008. Family Finances, Individualisation, Spending Patterns and Access to Credit. The Journal of Socio-Economics, 37 (2): 577–591.
Paulus, Alari, Mitja Čok, Francesco Figari, Péter Hegedüs, Nataša Kump, Orsolya Lelkes, Horacio Levy, Christine Lietz, Silja Kralik, Daniela Mantovani, Leszek Morawski, Holly Sutherland, Péter Szivós, and Andres Võrk . 2009. The Effects of Taxes and Benefits on Income Distribution in the Enlarged EU, in Tax and Benefit Policies in the Enlarged Europe: Assessing the Impact with Microsimulation Models, edited by Orsolya Lelkes and Holly Sutherland. Surrey: Ashgate.
Peichl, Andreas, and Thilo Schaefer . 2008. How Progressive is Germany? Comparing the Redistributive Effects of Tax Benefit Systems in Europe, EUROMOD Working Paper EM1/08.
Shorrocks, Anthony F . 1982. Inequality Decomposition by Factor Components. Econometrica, 50: 193–211.
Sutherland, Holly . 1997. Women, Men and the Redistribution of Income. Fiscal Studies, 18 (1): 1–22.
Sutherland, Holly . 2007. EUROMOD: The Tax-Benefit Microsimulation Model for the European Union, in Modelling Our Future: Population Ageing, Health and Aged Care, edited by Anil Gupta and Ann Harding. International Symposia in Economic Theory and Econometrics, Volume 16. Oxford: Elsevier.
Verbist, Gerlinde . 2004. Redistributive Effect and Progressivity of Taxes: An International Comparison Across the EU using EUROMOD, EUROMOD Working Paper EM5/04.
Vogler, Carolyn, Clare Lyonette, and Richard D. Wiggins . 2008. Money, Power and Spending Decisions in Intimate Relationships. Sociological Review, 56 (1): 117–143.
Vogler, Carolyn, and Jan Pahl . 1994. Money, Power and Inequality within Marriage. Sociological Review, 42 (2): 263–288.
Acknowledgements
This paper is based on work carried out as part of the I-CUE (Improving the Capacity and Usability of EUROMOD) project, financed by the European Commission as a Research Infrastructure Design Study (RIDS-011859) and as a contribution to the ESRC network on Gender Inequalities (GeNet). We are indebted to all past and current members of the EUROMOD consortium. However, the views expressed in this paper, as well as any errors, are the responsibilities of the authors and do not represent the official positions of the organizations to which the authors are affiliated. EUROMOD is continually being improved and updated and the results presented here represent the best available at the time of writing. We are grateful for useful comments on previous versions of this paper to participants of a symposium on “Gender Equality, Tax Policies and Tax Reform in Comparative Perspective” at the Levy Institute at Bard College, USA, in May 2006 and especially to Fran Bennett, Sue Himmelweit, Caren Grown, and Frances Woolley and participants of the 1st General Conference of the International Microsimulation Association, Vienna, in August 2007, as well as two referees and the Editor.
EUROMOD data sources used in this paper are the European Community Household Panel (ECHP) User Data Base made available by Eurostat; the Austrian version of the ECHP made available by the Interdisciplinary Centre for Comparative Research in the Social Sciences; the Income Distribution Survey made available by Statistics Finland; the Enquête sur les Budgets Familiaux (EBF) made available by INSEE; the public use version of the German Socio Economic Panel Study (GSOEP) made available by the German Institute for Economic Research (DIW), Berlin; the Survey of Households Income and Wealth (SHIW95) made available by the Bank of Italy; the Socio-Economic Panel Survey (SEP) made available by Statistics Netherlands through the mediation of the Netherlands Organization for Scientific Research — Scientific Statistical Agency; and the Family Expenditure Survey (FES), made available by the UK Office for National Statistics (ONS) through the Data Archive. Material from the FES is Crown Copyright and is used by permission. Neither the ONS nor the Data Archive bears any responsibility for the analysis or interpretation of the data reported here. An equivalent disclaimer applies for all other data sources and their respective providers cited in this acknowledgement.
Author information
Authors and Affiliations
Appendix
Rights and permissions
About this article
Cite this article
Figari, F., Immervoll, H., Levy, H. et al. Inequalities within Couples in Europe: Market Incomes and the Role of Taxes and Benefits. Eastern Econ J 37, 344–366 (2011). https://doi.org/10.1057/eej.2009.48
Published:
Issue Date:
DOI: https://doi.org/10.1057/eej.2009.48