OECD Economics Department Working Papers

ISSN :: 1815-1973 (online)
DOI :: 10.1787/18151973

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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

Strengthening Social Cohesion in Luxembourg

Making Efficiency and Equity Go Hand in Hand

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Authors:

Jean-Marc Fournier¹, Clara Garcia¹

Author Affiliations

1: OECD, France

Publication Date

08 Mar 2013

Bibliographic information

No.:: 1032

Pages

DOI

10.1787/5k49lcrgv2g4-en

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Luxembourg is a rich and fast-growing country. However, inequality of disposable incomes has trended up modestly over the past decades and relative poverty has risen reflecting mainly the rapid growth of high incomes. The relatively high inequality of market incomes is substantially reduced by large social transfers, but the risk of relative poverty still affects the most vulnerable, such as the young, the less educated, single parents and migrants. At the same time the generous transfer systems tend to reduce work incentives. There is significant room for improvement in the design of the tax and transfer system to enhance work incentives and improve targeting, particularly for the less skilled workers. Reforms that tackle poverty traps would both reduce inequality and improve the labour supply of residents. Strong activation policies are important in getting people to jobs. Job opportunities would also be enhanced by improving education outcomes for pupils from low socio-economic backgrounds and for secondgeneration immigrants. Reducing high repetition rates and better targeting education spending to schools with high shares of vulnerable students would help improve outcomes.

Keywords:: Luxembourg, education, redistributive effects of taxes and transfers, inequality, minimum income, income distribution

JEL Classification:

D31: Microeconomics / Distribution / Personal Income, Wealth, and Their Distributions
H23: Public Economics / Taxation, Subsidies, and Revenue / Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H53: Public Economics / National Government Expenditures and Related Policies / Government Expenditures and Welfare Programs
I24: Health, Education, and Welfare / Education and Research Institutions / Education and Inequality
I38: Health, Education, and Welfare / Welfare and Poverty / Government Policy; Provision and Effects of Welfare Programs