News and highlights on fiscal policy

March 2025

Public hearing at the EESC with JRC participation 

Our colleague Mattia Ricci, participated as an invited speaker in the European Economic and Social Committee (EESC) public hearing titled "Leaving the crises behind – Measures for a resilient, cohesive, and inclusive European economy". The event focused on exploring strategic measures to enhance resilience, cohesion, and inclusivity in Europe's economy following recent global shocks. 

In his presentation "From Vulnerability to Resilience: Lessons from the Cost-of-living Crisis", Mattia emphasized the interconnected nature of economic, social, and environmental challenges, particularly highlighting Europe's vulnerabilities related to fossil fuel dependence and limited strategic autonomy. Drawing on recent JRC research, he underscored the necessity for targeted relief measures rather than broad financial support to prevent economic distortions and ensure efficient use of public resources. He also outlined policy recommendations such as indexing taxes and benefits and avoiding market distortions. 

Other notable speakers provided comprehensive insights into the complexities of Europe's current challenges. Alexandru Zeana (DG ECFIN, European Commission) discussed macroeconomic outlooks and productivity trends, stressing the importance of investment and innovation to enhance productivity and living standards. Susanna Paraga (European Central Bank) emphasized maintaining price stability and managing climate risks through strategic monetary policy. Massimiliano Mascherini (Eurofound) highlighted the socio-economic vulnerabilities affecting specific demographic groups, particularly young adults and households with children, stressing the need for targeted social policies. Marco Cilento (ETUC) raised concerns regarding real wage stagnation and advocated for strong social protections and collective bargaining to address inequalities. Bryan Coughlan (BEUC) addressed consumer vulnerabilities, emphasizing the necessity to improve the competitiveness and transparency of consumer financial products. Anna Kolesnichenko (FEPS) underscored the importance of proactive inflation governance frameworks and preparation against future shocks, urging for democratic engagement in economic policymaking. Anton Hemerijck (European University Institute) emphasized social investment and cohesive public policies as vital elements for long-term economic resilience. 

The hearing concluded with broad agreement on the necessity of combining immediate relief measures with long-term structural reforms to ensure Europe's economic resilience and inclusivity. Key conclusions highlighted the importance of enhancing strategic autonomy, particularly in energy, fostering targeted social and economic policies to support vulnerable demographics, and improving the efficiency of public services through digitalization. Additionally, the participants stressed the need for improved coordination across EU member states, leveraging the potential of the Single Market, and investing in innovation to boost competitiveness and productivity. There was also a strong consensus on prioritizing democratic engagement in policymaking processes and ensuring sustainable public finance management to safeguard economic stability and social cohesion in the face of future challenges. 

The conclusions from the event will feed the upcoming EESC own-initiative opinion package of seven sectoral opinions on the cost-of-living crisis. 
 

Assessment of an In-Work Benefit Scheme in Greece with EUROMOD published in ECFIN Discussion Paper.  

In a recently published discussion paper, Chrysa Leventi and Hannes Serruys, together with colleagues from DG ECFIN Chris Allen and Irene Vlachaki, examined current developments in the Greek labour market and the potential role, design and impact of the introduction of an in-work benefit scheme. This work originated from JRC collaboration with DG ECFIN in the context of the European Semester. The paper combines the use of tax-benefit microsimulation model EUROMOD, and of EUROLAB, a discrete choice econometric model that allows to determine the impact of policy reforms on labour supply. Estimates suggest that the hypothetical in-work benefit scheme could increase labour market participation by 0.9 percentage points of the workforce, particularly among women. This would add approximately some 60,000 additional workers to the economy and increase overall labour hours by 1.2%.  With an overall fiscal cost of €290 million a year, once second-order employment effects are accounted for, the scheme could make a substantial contribution to an overall strategy to help mobilise and facilitate the country's long-term unemployed and inactive population to return to the labour market. 

7^th JRC Fiscal Policy Modelling Workshop 

JRC hosted the 7th JRC Fiscal Policy Modelling Workshop on March 13-14, which gathered leading researchers and policy analysts working on the use of economic modelling for fiscal policy analysis. The topics covered in this year’s workshop were corporate taxation, macroeconomic modelling with household heterogeneity, and tax-benefit modelling at household level.  

Cathal O’Donoghue was our excellent Keynote Speaker, a renowned economist known for his expertise in the field of microsimulation modelling, and with impactful research across a wide range of policy areas. His presentation, titled "A Novel Modelling Approach to Enhance Our Understanding of the Interaction Between Market Changes and Inequality," emphasized the role of modelling in improving our understanding and addressing income inequality. 

The first session, chaired by Ana Xavier from DG TAXUD, explored corporate taxation across various dimensions, including international spillovers, tax avoidance behavior, tax incidence, firm market power, and wealth inequality. Roxanne Raabe highlighted inefficiencies in nationally set R&D tax subsidies, demonstrating significant cross-border knowledge spillovers that enhance economic activity. Christos Kotsogiannis examined firms' responses to Bulgaria's VAT registration threshold, revealing widespread turnover manipulation to avoid taxes. Sebastien Laffitte demonstrated significant impacts of temporary corporate tax increases on large French firms, affecting output prices, employment, and investment. Lastly, Lidia Brun Carrasco illustrated how higher corporate tax rates could stimulate aggregate investment and mitigate wealth inequality by taxing market power rents. 

The second session, chaired by DG ECFIN colleague Nicola Gagliardi, focused on quantitative macroeconomic models with household heterogeneity to address fiscal policy questions. The research presented covered both pension-related issues and broader fiscal policy considerations. The session featured four presentations. Selma Malmberg analyzed fiscal consolidation strategies in a HANK model for France, highlighting the trade-offs between cutting public consumption and redistributing transfers. She found that cutting only public consumption is too contractionary, while redistributing transfers from Bismarckian to Beveridgian systems helps reduce debt without harming growth or equity. Delaying consolidation increases the required budgetary effort, leading to growth losses and rising inequality. Pavel Brendler examined optimal tax and pension system design, identifying two reform paths balancing efficiency and redistribution. According to this model, the optimal tax-pension policy depends on social preferences, with the first reform maximizing utilitarian welfare and the second preferred if inequality concerns dominate. Myroslav Pidkuyko assessed Spain’s fiscal response to inflation, showing VAT cuts effectively mitigated welfare losses, particularly for younger and single individuals. Finally, Paula Sánchez Gil explored pension sustainability, emphasizing the role of individual incentives and how increasing accrual rates can expand pension space. The discussion underscored the complexity of balancing fiscal sustainability, individual incentives, and efficiency in policy design.  

The third session, chaired by Alessia Fulvimari from DG EMPL, focused on how the green transition might affect households, along four presentations. Denisa Sologon presented an exploratory study on the distributional effects of inflation and carbon taxes, emphasizing gender disparities in carbon emissions. Miguel Angel Tovar explored how own and cross-price elasticities could ease the financial strain of rising energy costs, along with factors influencing the success of government transfers in addressing affordability issues. David Klenert presented the results of the analysis on the impact of ETS2 and certain stylized support measures on energy and transport poverty using the Green EUROMOD microsimulation model. Iñaki Arto assessed the consequences of carbon pricing in road transport on Spanish households' living costs and welfare, employing a microsimulation model that incorporates behavioral responses. He emphasized the importance of considering income and expenditure to fully understand the distributional effects of carbon pricing, which can identify vulnerable households affected by ETS2 and guide the formulation of compensation strategies in Spain. The speakers collectively underscored the need for a deeper understanding of the distributional impacts of green transition policies and the development of effective compensation mechanisms to mitigate these effects. 

In addition, this year’s edition included a Roundtable on Affordable Housing in the EU. The panelists (Jordi Jofre-Montseny, Magdalena Gorczynska-Angiulli, Ana Xavier, Sam Whittaker and Marissa Plouin, researchers and policy analysts working on housing-related topics)  discussed ongoing and future policy relevant research questions to address the situation of housing affordability in Europe, with a focus on its interconnection with energy poverty and the green transition. The role that fiscal policies, such as tax rebates, housing subsidies, and public housing can play in addressing these issues was an important part of the discussion. Determinants of the housing crisis such as the low provision of public housing in some EU Member States, the limited residential rental availability, the hike in energy prices, the lower pace at which wages have grown, compared to housing rents and prices, the lack of adequate transport infrastructures or the demand-supply mismatch were highlighted. Homelessness was also part of the discussion, with panelists emphasizing the necessity to gather data on this issue. Regarding the research gaps, the panelists underlined the need for good administrative data on housing sales and rents, which would contribute to causally identifying existing problems. They also cautioned that the policy effects obtained may be very different across countries and markets. Lastly, they put forward the need for ex-post evaluation to be able to design future policies. 

All information on the event here: 7th JRC Fiscal Policy Modelling Workshop - European Commission . Many thanks in particular to the organizers of the workshop: Salvador Barrios, Ana Agúndez, Fotis Ntelis, Paula Sánchez, Luis Manso, Marta Jedrych and Jacob Meng!

January 2025

Aligning food taxation with climate goals: A possible path to greening consumption in Europe

Agriculture is a significant contributor to EU greenhouse gas (GHG) emissions, yet it remains largely excluded from current carbon pricing frameworks, creating a critical gap in climate policy. In a recent column published in the highly-influential VoxEU portal, JRC colleagues explore how tax policy could help addressing this challenge. 

The study, combining the JRC’s CAPRI agro-economic partial equilibrium model with the EUROMOD microsimulation model, analyses how VAT rates re-allocation linked to GHG emissions can help achieve environmental, competitiveness, and equity objectives. Importantly, the analysis highlights the need for complementary mechanisms, such as feebates, to ensure reforms reduce emissions while protecting vulnerable populations. 

This initiative showcases the strength of interdisciplinary collaboration at the JRC, with contributions from researchers across JRC, alongside academics. It also benefited from the funding of the GD AMEDI project of DG EMPL. We are proud to share this as a tangible example of the JRC’s role in shaping actionable, evidence-based policies for a sustainable future.

October 2024

EUROMOD training course (23-10-2024)

A three-day EUROMOD training course took place last week at JRC-Seville. The course was taught by JRC colleagues Paola De Agostini, Ilda Dreoni, Chrysa Leventi, Andrea Papini and Fidel Picos. We welcomed 20 participants on site, who were coming from a variety of institutions including universities, research centres, ministries, central banks, European organisations, and involved academics, policy makers, data experts and other interested users. Time was allocated to lectures, live demonstrations of the model and hands-on exercises. The aim of this course is to create a new generation of users of EUROMOD, an open-access model that enables relevant and evidence-based policy analysis.  

EUROMOD Annual Meeting and Research Workshop (2-10-2024)

The EUROMOD Annual Meeting and Research Workshop took place on 25-27 September in Marseille. It was co-organised by the EUROMOD team at JRC and the Aix-Marseille School of Economics (AMSE). The events gathered around 75 participants, including JRC staff, representatives from partner DGs, members of the EUROMOD National Teams and several invited academic experts. 

The goal of the Annual Meeting is to reflect on EUROMOD’s latest developments, plan the coming work and exchange views on the future improvements of the model. The sessions of the meeting gave an overview of the multifaceted work carried out in 2024: developments of the core model and its extended functionalities, especially the extension to consumption taxes; uses of EUROMOD for policy support, including country-specific analyses; recent and planned software updates, etc.  

The Research Workshop gathered academic and institutional EUROMOD users, to share mainly their model-based work and get feedback from the EUROMOD community. The presentations were grouped in five thematic clusters, covering topical issues such as the rising cost of living, the impact of fiscal policies, public health, distributional analysis with administrative data, and Global South model developments and applications. Olivier Bargain (University of Bordeaux) was our Keynote speaker, talking us through ‘Non-EU tax systems: efficiency, equity and stabilization’. His lecture showed the important impact that EUROMOD is having on the development of tax-benefit microsimulation models in other parts of the world. 

Overall, a successful and inspiring event that brought together the EUROMOD community, allowing the time and space to discuss, to reflect and to spark new policy-relevant research ideas in beautiful Marseille. Congratulations to everyone who made it possible! 

August 2024

VoxEU column by JRC colleagues on the effects of the cost-of-living crisis 

In a recent VoxEU blog post, JRC colleagues Mattia Ricci and Daniel Stöhlker, in cooperation with Boris Chafwehé (Bank of England), discuss the effects of the current cost-of-living crisis on household wealth, exploring the disparate impacts on various demographic and income groups within six Eurozone countries. The research is driven by the observation that while rising living costs and inflation have universally eroded the purchasing power of income and wealth, their impact has not been evenly distributed. Particularly vulnerable to the crisis are pension-age households, whose accumulated wealth has diminished in real terms. At the same time, there has been significant concern about working-age households with mortgage debt, especially given the prevalence of adjustable-rate mortgages and the potential for rising interest rates to exacerbate their financial burden.

The study’s results reveal that the crisis has, indeed, had a heterogeneous impact on different demographic groups. Notably, it shows that working-age individuals holding mortgages have actually experienced wealth gains, despite facing higher interest payments in the case of adjustable mortgage interest rates. This is because the inflationary environment has reduced the real value of their mortgage debt more than the increase in interest payments (a phenomenon known as the Fisher effect in economics). On the other hand, working-age individuals without mortgages and pension-age households have generally suffered losses due to the diminished real value of their assets and the reduced purchasing power of their incomes. In summary, the article sheds light on the complex dynamics of the cost-of-living crisis, highlighting how mortgage status plays a crucial role in determining the financial outcomes for households during such economic periods. 

VoxEU is a prominent policy portal renowned for promoting research-driven policy analysis and commentary from leading economists. With its wide readership that spans across the public and private sectors, as well as academia, VoxEU’s columns are highly influential and widely respected. We are thrilled to see that our colleagues’ insightful work has been featured on such a prestigious platform. Kudos to Mattia and Daniel!

June 2024

Contribution to the Pension Adequacy Report 2024  (27-06-2024) 

Ensuring the adequacy of old-age income and pensions is one of the principles in the European Pillar of Social Rights to build a fairer and more inclusive European Union. To support this goal, the Social Protection Committee (SPC) and DG EMPL prepare every three years the Pension Adequacy Report (PAR), the latest edition of which, the PAR2024, was released last week.  

The PAR2024 provides a comparative analysis of the current and future old-age pension adequacy in the EU, with a focus on inequality, poverty and the gender pension gap. Colleagues in JRC, in collaboration with DG EMPL, have contributed to the PAR2024 analysing the role of pension taxation in this context. For that, they used the JRC general equilibrium overlapping generations model EDGE-M3 together with the EUROMOD microsimulation model. 

The analysis simulates different tax scenarios for pension benefits and contributions for four countries representing different pension systems (DE, IT, LV, NL). The results provide static and dynamic insights on the fiscal, distributional and poverty impact of the different scenarios. Generally speaking, the results suggest that  different tax treatments of pension income and contributions may make for substantial differences in the gender pension gap, inequality and poverty indicators, further highlighting the importance of the progressivity of the tax systems. 

Congratulations to former and current JRC colleagues Boris Chafwehé, Irina Belousova, Jonathan Pycroft, Fidel Picos and Silvia Navarro for the great work!. 

Flash Estimates of income inequalities and poverty indicators for 2023 using EUROMOD (26-06-2024)

Providing timelier social statistics – especially indicators on income poverty and inequality – is a priority for the Commission and the European Statistical System, as these indicators are essential for monitoring progress towards poverty and social exclusion targets. To improve the timeliness of these indicators, Eurostat produces experimental flash estimates, based on microsimulation and macro-economic models rather than survey data (that always have a longer time lag). 

The 2023 flash estimates of poverty and inequality have been just released. As in recent years, they rely on EUROMOD, the tax-benefit microsimulation model developed and supported by JRC. By leveraging EUROMOD, ESTAT can now provide flash estimates that are appreciably earlier than the survey data, allowing for more effective monitoring of social policies at the EU level. This model's application showcases JRC's critical role in delivering timely, policy-relevant data on inequality and poverty.

The latest results indicate a slight decrease in the EU's at-risk-of-poverty rate by 0.2 percentage points in 2023. Most EU countries exhibit stability or insignificant changes in poverty rates. Flash estimates for 2023 also anticipate the EU's income to rise nominally by around 6.0%, while real income is expected to remain stable at +0.2%. These insights are crucial for policymakers, enabling them to respond to socioeconomic shifts with greater agility. 

EUROMOD workshop in Poland (19-06-2024)

JRC provided training to economists from two candidate countries, Ukraine (Kyiv School of Economics, KSE) and Georgia (International School of Economics at Tbilisi State University, ISET) on the use of the JRC EUROMOD model, which is used to analyse tax and social benefits reforms.  

The training was organised by the FREE Network in Szczecin (Poland, 12-13 June) and was also attended by members of other research centres in Central and Eastern Europe. Georgian and Ukrainian participants showed keen interest in developing tailored tax-benefit microsimulation models for their countries, and successfully acquired the necessary skills and confidence in using EUROMOD. 

The training will pave the way for future collaboration with institutions in these candidate countries.

Walk the Talk at Parque del Alamilo (05-06-2024)

On 24^th May,  colleagues from JRC walked the “fiscal policy analysis” talk at the Parque del Alamillo in Sevilla. This was their first team event under the “Walk the Talk” method as a reflective tool and social gathering occasion, and it turned out to be quite inspiring and fun! Participants enjoyed the fresh air of the morning and walked the green paths of Alamillo while talking about some teamwork reflection questions proposed by Salvador Barrios and Ana Agundez. 

After the walks in small 3-4 people groups, everyone shared reflections in one minute pitches, providing interesting insights and ideas for collaborations in a fresh environment. And of course, it all ended up with a nice picnic, tortillas de patatas and a couple of beers under the shades of oak and cork trees in the park! 

After this experience, we totally recommend the Walk the Talk set-up for team events!

March 2024

Training on EUROMOD for European System of Central Banks (26-03-2024)  

The European System of Central Bank, which includes the European Central Bank and the national central banks of all EU Member States, visited JRC-Seville last week for a two-day training on the EUROMOD model. The ESCB’s close interest in EUROMOD model shows the policy relevance of JRC’s activities in the area of fiscal policy and the growing collaboration between the two institutions to promote the use of microsimulation modelling as part of EU central banks´modelling toolkit. 

Thanks to colleagues: Paola De Agostini, Ilda Dreoni, Mattia Ricci and Antonio F. Amores.

Training on Indirect Tax Tool of EUROMOD for Staff from the European System of Central Banks (ESCB) (20-03-2024)

JRC team on Consumption Taxation (Antonio F. Amores, Paola De Agostini, Ilda Dreoni, Mattia Ricci) trained staff from the European System of Central Banks (ESCB) on the usage of the Indirect Tax Tool of EUROMOD. This training was the continuation of the basic EUROMOD training that JRC EUROMOD team (Fidel Picos, Andrea Papini and Mattia Ricci) delivered to them in Frankfurt in late January.

In this occasion, 40 staff from 19 central banks and ECB joined the training which was very much thanked by the leaders of the ESCB microsimulation network (MSN).

These trainings follows an initiative of the Working Group on Public Finance of the ESCB to set a MSN given that microsimulation is a technique not very used among central bankers which huge potential was shown in the successful joint paper between JRC and a group of ESCB, that has been highly cited also by media, the president of the ECB, etc. This has been a good practice example of interinstitutional collaboration and now a formal collaboration agreement between ECB and JRC is being negotiated to cover these and related activities.

6th annual Fiscal Policy analysis workshop (07-03-2024)

JRC organised its 6th annual Fiscal Policy analysis workshop this week in Sevilla, gathering economists from universities and research centers to discuss their latest research and JRC recent scientific outputs. It was once again a great success!

Congratulations to the organisers: Sabine Naimer, Hugo Cruces, Fotis Ntelis and Rocio Hernandez!

This year we could enjoy a very interesting keynote speech given by Mila Paniagua, from the Spanish Tax Agency and formerly Secretary General for Social Inclusion in the Spanish government. Mila was one of the key persons behind the recent adoption of the Minimum Income in Spain. She is also a close friend of JRC, leading the Spanish team EUROMOD national team during her time at the Instituto de Estudios Fiscales. Her speech was very inspiring, dealing with the use of big data and AI to support social policy making and plenty of food for thought for the design of policies aiming at leaving nobody behind during the twin transition.

January 2024

EUROMOD training at the European Central Bank (31-01-2024)

Andrea Papini, Fidel Picos and Mattia Ricci from JRC provided a 2-days EUROMOD training at the European Central Bank (ECB) headquarter in Frankfurt, to the analysts of the European System of Central Bank (ESCB) microsimulation network.

This training is a further step in our collaboration with the ECB and marks an important milestone in the effort to enhance the reach, adoption, and policy impact of EUROMOD. Importantly, this training is part of a broader Collaboration Agreement between JRC and the DG Statistics and the DG Economics of the European Central Bank (ECB). This collaboration agreement, soon to be signed, will promote the development of a version of EUROMOD running with the ECB-released data on Household Finance and Consumption (HFCS) and the adoption of EUROMOD among the ECB and national central bank analysts.

This collaboration agreement holds significant strategic importance. It will not only expand the capabilities of EUROMOD but also strengthen our ties with the ECB. The recent research paper "Inflation, Fiscal Policy and Inequality", which was the result of a research collaboration between JRC and ECB analysts, was even quoted by the ECB President in a recent speech and it stands as an example of how impactful the collaboration between researchers of our institutions can be.

We are confident that the continued collaboration between the JRC and the ECB will lead to further impactful research to inform policy making in the EU!

October 2023

Report on Public Finances in EMU 2022 (25-10-2023)

The Report on Public Finances in EMU 2022, one of the flagship publications of DG ECFIN, was published this week.

JRC colleagues Chrysa Leventi and Alberto Mazzon used EUROMOD to illustrate the short-term budgetary impact of the inflation shock seen in 2022 across EU countries, in a situation in which this shock translates into wage increases.

EUROMOD can be used to account for fiscal drag and benefit erosion, two key channels via which inflation can affect budgetary outcomes. Simulation results point at a favorable and differentiated impact on the budget balance, ranging from 0.5 to 1.5 percent of GDP across EU countries.    

Publication on Tackle energy poverty (25-10-2023)

The Commission published recommendations to tackle energy poverty across the EU.

JRC colleagues Sofía Maier, Ilda Dreoni and Antonio F. Amores contributed to the Staff Working Document by analysing under the AMEDI+ administrative agreement with DG EMPL, the overlapping of Energy Poverty indicators and the profiles of households identified by each of them. 

EUROMOD training course (18-10-2023)

A three-day EUROMOD training course took place this week at JRC-Seville.

The course was taught by JRC colleagues: Ilda Dreoni, Chrysa Leventi, Andrea Papini, Fidel Picos and Hannes Serruys.

The 22 participants who attended the course originated from a variety of institutions including universities, research centres, ministries, European and international organisations, and involved academics, policy makers, data experts and other interested users. Time was allocated to lectures, live demonstrations of the model and hands-on exercises.

The ultimate goal of the course is to create a new generation of users of EUROMOD, a model that enables timely, relevant and evidence-based policy analysis. to help governments design policies that reduce poverty, inequality, and ensure sustainable economic growth.

Spanish media on JRC study "Inflation, fiscal policy and inequality" (18-10-2023)

Spanish media  are referring to the results of a joint JRC-ECB study on “Inflation, fiscal policy and inequality” recently published as ECB Occasional Paper co-authored by JRC colleagues: Antonio F. Amores, Paola De Agostini, Silvia De Poli, Sofia Maier and Mattia Ricci.

Mention on Conference in ECB (04-10-2023)

Christine Lagarde, President of the ECB, made reference to the results of a joint JRC-ECB study on inflation during a speech given at joint IEA-ECB-EIB High-Level International Conference entitled "Ensuring an orderly energy transition: Europe's competitiveness and financial stability in a period of global energy transformation" that took place in Paris on the 29/09.

This work will soon be published as ECB Occasional Paper co-authored by JRC colleagues: Antonio F. Amores, Paola De Agostini, Silvia De Poli, Sofia Maier and Mattia Ricci.

The study focuses on the effect of inflation on households welfare and on the role of policies to cushion its impact in selected Euro countries (Germany, France, Spain, Italy, Greece and Portugal).