1887

OECD Economics Department Working Papers

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.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Effects of tax-benefit policies on the income distribution and work incentives in Estonia

The paper studies the impact of tax-benefit policies on the distribution of household incomes and work incentives in Estonia. It makes use of microsimulation modelling approach and applies the EU tax-benefit model EUROMOD to quantify the first-order effects of policy changes in 2016-2018 and of a range of alternative policy scenarios aimed at increasing the adequacy of social benefits. According to the simulations, 2016-2017 policies increased household incomes relative to inflation and were both poverty and inequality reducing. Alternative policy scenarios indicate that, among the considered options, increasing the generosity of the subsistence benefit and relaxing its means test by halving the withdrawal rate (currently at 100%), would have the highest first-order impact for a given fiscal cost. However, these measures would also weaken work incentives, which points to a conventional equity-efficiency trade-off. Other simulations demonstrate some scope for improving work incentives at low and middle-income levels together with modest reductions in poverty and inequality.

This Working Paper relates to the 2017 OECD Economic Survey of Estonia

(http://www.oecd.org/economy/estonia-economic-snapshot/)

English

Keywords: tax-benefit policies, work incentives, income distribution, Estonia
JEL: H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies; D31: Microeconomics / Distribution / Personal Income, Wealth, and Their Distributions; I38: Health, Education, and Welfare / Welfare, Well-Being, and Poverty / Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs
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