The capacity of the tax-benefit system to smooth the impact of large economic shocks on household income represents a cornerstone of welfare state performance. In the aftermath of the financial crisis and the Covid-19 pandemic, EU Member States were put under a stress test that resulted in different outcomes depending on the policies in place. In the present paper, we stress-test the tax-benefit systems of all 27 EU Member States under hypothetical unemployment shocks using EUROMOD microsimulations. In addition, we provide results on poverty and fiscal costs, and we extend the analysis to look at the evolution over the periods 2014, 2019 and 2025 to test temporal stability. We find that tax-benefit systems absorb approximately 44% of the market-income loss in the EU, with variation from 17% in Bulgaria to 61% in Belgium. The coefficient is flat across shock magnitude and across the working-age income distribution. However, the flat profile conceals an inversion of the instrument mix along the income distribution. Income taxation provides most of the stabilisation at the top quintile, whereas unemployment benefits and social assistance contribute the most to the stabilisation at the bottom. On average, taxes and social security contributions account for 70% of the total stabilisation at the EU-27 level, while benefit-side instruments account for 30%. Our results also suggest that although the aggregate coefficient has not changed significantly over the decade, its composition has shifted, observing an average decline in unemployment benefits and a rise in social assistance and housing benefits. The findings point at Member States with minimal benefit-side stabilisation presenting the most acute vulnerability.

JRC working paper

Over the past few years, with the recovery from the COVID-19 and the global energy crisis, households in the EU have faced sharp increases in the prices of necessities such as energy and food.  These pressures compound a longer-term housing affordability crisis. Despite the abundance of indicators on income, energy and housing poverty, only a few studies have consistently addressed their interactions, showing strikingly little overlap among them. In this context, we use an adaptation of John Hills' Low-Income High Cost (LIHC) indicator originally developed for the UK to consistently assess both energy and housing deprivations across all EU27 countries. This approach minimizes "false positives" by excluding households at the top of the income distribution who may have high energy or housing costs but are not genuinely deprived. Additionally, we examine whether middle-class households fall below poverty thresholds if they were to face median equivalised energy and housing expenditures, revealing a form of "hidden poverty" not captured by conventional income-based measures. Using this approach, we identify where in Europe these deprivations are most severe and which population groups are most affected. These findings can inform the design of more targeted poverty alleviation policies.

JRC working paper

We use European Social Survey data to disentangle the ‘inherited’ and the ‘contextual’ components of resilience, following the approaches taken in Alesina and Giuliano (2010) and Luttmer and Singhal (2011). We suggest that the inherited part of resilience reflects culture in the country of birth, while the contextual part captures both institutions and culture in the country where the individual currently resides. We separately identify these two components via a sample of immigrants, for whom the birth and residence countries differ. We find that resilience is both inherited and contextual, with the latter component being the most important. The ‘inherited’ component of resilience is larger for men and those who do not have citizenship in their residence country, and the ‘contextual’ component is greater for those who come from an EU member state. We last present some evidence from second-generation immigrants of the intergenerational transmission of inherited cultural resilience.

PSE working paper

Short video

This paper uncovers the long-term consequences of warfare on resilience. I exploit a quasi-experimental setting, using variation in WWII destruction in West German cities and variation in exposure to the war. I use data from the German Municipality Statistical Yearbooks of 1949 and combine it with the German Socio-Economic Panel (SOEP). Employing a difference-in-differences estimation, I find that exposure to greater war intensity during birth, childhood or young adulthood increases the resilience of individuals when they grow older. Cohort analysis shows that older generations were especially sensitive to the shock. In addition, I perform mediation analysis to test different instrumental mechanisms, such as income, employment or education. The findings are robust to sample selection, falsification tests and validity checks. Furthermore, focusing only on observations closer to the threshold and later using a donut difference-in-differences, I reject that the main result is due to the potential negative effect of destroyed institutions on those born after the war.

Link

Video from the STATEC Measuring Progress Workshop (2-3 June, 2023)