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Assessing the effectiveness of social protection measures in mitigating COVID-19-related income shocks in the European Union

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Listed:
  • Gasior, Katrin
  • Jara, H. Xavier
  • Makovec, Mattia

Abstract

By means of counterfactual simulation methods, this paper quantifies the role of tax– benefit policies in mitigating the shock of the COVID-19 pandemic to household income in the European Union. The tax-benefit microsimulation model for the European Union EUROMOD is used to decompose changes in the income distribution into the effects of: (i) earnings losses due to COVID-19, (ii) automatic stabilizers, (iii) monetary compensation schemes introduced during the pandemic; and (iv) COVID-19-specific reforms to taxes and benefits implemented by European Union governments. The results show a great deal of heterogeneity between countries in terms of earnings losses and the effect of tax-benefit policies during the COVID-19 pandemic. In most countries, the largest contribution to cushioning the economic shock of the pandemic comes from monetary compensation schemes. Automatic stabilizers also play a role, mainly through the effects of social insurance contributions, taxes, and unemployment insurance benefits. Tax-benefit systems cushioned incomes to a large extent even among those most severely affected by the shock to earnings, with an important role for monetary compensation schemes, but also a larger stabilizing effect of unemployment insurance. Among automatic stabilizers, social assistance benefits played an important role in cushioning the income shock for the poorest quintiles among the most severely affected, but only in selected countries.

Suggested Citation

  • Gasior, Katrin & Jara, H. Xavier & Makovec, Mattia, 2023. "Assessing the effectiveness of social protection measures in mitigating COVID-19-related income shocks in the European Union," LSE Research Online Documents on Economics 120240, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:120240
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    References listed on IDEAS

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    1. Mike Brewer & Iva Valentinova Tasseva, 2021. "Did the UK policy response to Covid-19 protect household incomes?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(3), pages 433-458, September.
    2. Helen Barnes & Gabriel Espi-Sanchis & Murray Leibbrandt & David McLennan & Michael Noble & Jukka Olavi Pirttilä & Wynnona Steyn & Brenton Van Vrede & Gemma Wright, 2021. "Analysis of the Distributional Effects of COVID-19 and State-led Remedial Measures in South Africa," International Journal of Microsimulation, International Microsimulation Association, vol. 14(2), pages 2-31.
    3. Alari Paulus & Iva Valentinova Tasseva, 2020. "Europe Through the Crisis: Discretionary Policy Changes and Automatic Stabilizers," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(4), pages 864-888, August.
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    More about this item

    Keywords

    social protection; social safety nets and transfers; social welfare; Covid-19; poverty and fiscal; financial and economic crisis; EU; income distribution;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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