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

Strengthening Social Cohesion in Luxembourg

Making Efficiency and Equity Go Hand in Hand

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.

English

Keywords: income distribution, Luxembourg, inequality, redistributive effects of taxes and transfers, minimum income, education
JEL: D31: Microeconomics / Distribution / Personal Income, Wealth, and Their Distributions; H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies; H53: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Welfare Programs; I24: Health, Education, and Welfare / Education and Research Institutions / Education and Inequality; 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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