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The Impact of Taxation on the Equalizing Effect of Social Insurance to Income Inequality: a Comparative Analysis of Ten Welfare States

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  • Kenneth Nelson
  • Tommy Ferrarini

Abstract

Welfare state regimes vary in their redistribution strategies. Some welfare states have extensive taxable social insurance schemes, while others rely more on non-taxable means-tested benefits. In order to assess the distributive effects of different program types, it is necessary to analyze social insurance after taxes, something rarely practiced in comparative research. In this paper, we evaluate distributive effects of social insurance after taking taxes into account in ten welfare states. However, a study of net social insurance raises estimation problems in countries where spouses are taxed separately and income data only is reported on household level. The paper therefore includes a series of validity tests of estimated levels of social insurance after taxes. The main conclusion is that it is possible and necessary to estimate social transfers net of taxes in order to not misspecify the redistributive outcome of social insurance in both inter-country and intra-country analyses of income distributions. The analyses are based on micro level income data from the Swedish Level of Living Survey (LLS) and the Luxembourg Income Study (LIS) including ten countries.

Suggested Citation

  • Kenneth Nelson & Tommy Ferrarini, 2002. "The Impact of Taxation on the Equalizing Effect of Social Insurance to Income Inequality: a Comparative Analysis of Ten Welfare States," LIS Working papers 327, LIS Cross-National Data Center in Luxembourg.
    • Handle: RePEc:lis:liswps:327
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    Cited by:

    1. Gudrun Biffl, 2003. "Diversity of Welfare Systems in the EU: A Challenge for Policy Coordination," WIFO Working Papers 207, WIFO.
    2. Goudswaard, Kees & Caminada, Koen, 2008. "The redistributive impact of public and private social expenditure," MPRA Paper 20178, University Library of Munich, Germany.
    3. Gudrun Biffl, 2007. "The Employment of Women in the European Union," WIFO Working Papers 297, WIFO.
    4. Koen Caminada & Kees Goudswaard, 2005. "Are Public and Private Social Expenditures Complementary?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 11(2), pages 175-189, May.
    5. repec:kap:iaecre:v:11:y:2005:i:2:p:175-189 is not listed on IDEAS
    6. Gudrun Biffl, 2008. "The Promotion of Employment and Earning Opportunity of Women in Europe through Gender Mainstreaming. With Special Emphasis on Austria," WIFO Working Papers 319, WIFO.

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