In theory, tax and benefit rules are gender neutral, in the sense that individuals who are identical except for their gender should be treated in the same way. In practice, tax and benefit policies can affect women and men differently because of gender differences in many characteristics relevant to tax liabilities and benefit entitlements, especially earnings and care responsibilities. Better understanding of the contribution of tax and benefit policies to gender income inequality is therefore important for advancing the gender equality agenda. Moreover, while market inequalities are usually resistant to change, public policies may be more amenable to transformation.
In this research project, MiSoC researcher Avram and co-author Popova aim to advance the existing knowledge and understanding on how tax and transfer policies impact on economic inequalities between men and women using EUROMOD, a state of the art microsimulation model covering 27 EU countries, and its UK counterpart UKMOD.
In a recent paper, the authors measured differences in the level and composition of individual disposable incomes of men and women in eight European countries covering various welfare regime types. They found that with the exception of old-age pensions, taxes and transfers – both contributory and means-tested – significantly reduce gender income inequality but cannot compensate for high gender earnings gaps. The equalizing effect of benefits differs significantly not only across countries but also across groups with different demographic characteristics, whereas the equalizing effect of taxes is more consistent.
The researchers are now planning to expand on these findings in two ways. First, they will use the the 2010 EU-SILC module on intra-household sharing of resources to construct better measures of individual disposable income that are based on more realistic assumptions about intra-household income pooling and sharing. Second, they will examine how the tax and benefit system supports the incomes of men and women after union dissolution. Divorce/separation can trigger a substantial income shock to individuals experiencing it, especially if there are dependent children in the family. Women usually experience a sharp decline in income, while men may even improve their standard of living. All the existing studies of the financial consequences of the union dissolution assume that prior to the breakdown all incomes of the couple were pooled and equally shared. This unrealistic assumption precludes a better understanding of the heterogeneity in the impact of this event on men and women. Instead, this research will use income measures developed using more realistic pooling assumptions to assess the impact of divorce/separation on gender inequality, and to quantify the extent to which taxes and benefit entitlements, including private child support and advance maintenance payments, can bridge the gap in incomes after union dissolution.