News and highlights on fiscal policy

April 2026

8th JRC Fiscal Policy Modelling Workshop (14-04-2026)

JRC hosted the 8th JRC Fiscal Policy Modelling Workshop on April 14-15, 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 aligned with our unit´s areas of work: macroeconomic modelling with household heterogeneity, corporate taxation and tax-benefit modelling at household level.  

Our Keynote speaker, Prof. Dina Pomeranz (University of Zurich) delivered a speech on  “Raising Money for the State: Challenges of Taxation in Developing Countries” 

Prof. Pomeranz stressed that effective taxation is a core pillar of state capacity. Without it, governments cannot sustainably finance infrastructure and public services, and low taxation often goes hand in hand with unequal taxation, as some income sources remain outside the tax net.

Drawing on insights from several of her seminal research studies, she showed why taxation is particularly challenging in developing countries. Large informal sectors, weak information systems, and limited paper trails make broad-based income taxation difficult, which helps explain the greater reliance on more easily enforceable taxes such as tariffs and VAT.

She also emphasized that enforcement can contribute positively to domestic revenue mobilization, but taxpayers adapt. VAT is powerful because it creates third-party reporting along the value chain, yet stronger enforcement may shift evasion into other forms, such as inflated costs or fake “ghost firms.” This makes credible deterrence and fines essential.

Finally, she highlighted the difficulties of taxing multinationals. In areas such as transfer pricing, stricter rules may increase compliance activity and consultant demand more than actual tax payments, leaving tax administrations at a structural disadvantage relative to sophisticated private advisory firms.

The first session on macroeconomic modelling with household heterogeneity was chaired by Nicola Gagliardi (DG ECFIN). Katja Mann (Copenhagen Business School) analyzed the relationship between pension and non-pension investment decisions using a new Danish microdataset. The key result is the presence of strong positive spillovers in risk-taking across accounts: individuals with higher-risk pension portfolios also take more risk in their non-pension savings and earn higher returns in both. The paper shows that these decisions are often made jointly and respond simultaneously to individual and aggregate shocks. It also provides evidence of policy spillovers, where changes affecting one type of savings (e.g. stock market policies) translate into adjustments in the other, suggesting that portfolio choices should be studied in an integrated framework.

Marta Cota (Nova School of Business and Economics) studied gender differences in wealth accumulation through a life-cycle model of financial decision-making combined with US and Dutch survey data. The main finding is that lower financial literacy and a higher propensity to delegate financial decisions among women contribute significantly to gender wealth gaps. Financial literacy increases following events such as divorce or widowhood, but its effects differ across asset classes: it raises participation mainly in safe assets, with more limited impact on equity holdings, pointing to a role for financial confidence. The paper shows that intra-household dynamics are central to understanding savings behavior and that policies aimed at improving financial literacy can reduce wealth inequality over the life cycle.

Alexander Ludwig (European University Institute) developed a general equilibrium life-cycle model of the higher education market with heterogeneous colleges and endogenous student sorting. He showed that demographic change—especially the projected decline in high-school graduates—can significantly alter the equilibrium distribution of college quality, tuition, and specialization. Combined with technological change affecting labor demand, this “demographic cliff” leads to important distributional effects across students and institutions. The analysis indicates that education finance policies, including public funding and student loan design, can play a decisive role in shaping both access to education and long-term labor market outcomes.

Dušan Stojanović (European Commission, Joint Research Centre) examined the macroeconomic implications of transitioning to a longevity society using a heterogeneous-agent overlapping generations model calibrated to European economies. The central finding is that increasing the effective retirement age, or policies that promote higher labour force participation among older workers, generate sizable fiscal gains by expanding the tax base and reducing pension expenditures. In the simulations for countries such as Germany, Spain, and Sweden, these gains are large enough to allow for reductions in consumption taxes of several percentage points. The results suggest that policies fostering longer and more productive working lives can play an important role in maintaining fiscal sustainability in the face of demographic aging.

Overall, the session showed how heterogeneity in financial behavior, portfolio choices, and life-cycle decisions interacts with pension systems and demographic change, with important implications for fiscal policy design.

The second session on Corporate taxation was chaired by Sam Whittaker (DG TAXUD). Johannes Voget (University of Mannheim) studied how profit tax uncertainty affects firms’ expectations and planned investment. Using a survey-based randomized controlled trial with German firms, it isolates the effect of uncertainty by holding the expected future tax rate constant and varying only the degree of uncertainty around that forecast. The main finding is clear: higher perceived tax uncertainty reduces planned investment in both tangible and intangible assets and also lowers expected profits. The presentation thus highlighted that not only the level of taxation matters for firm behavior, but also the predictability of the tax system.

Elvin Le Pouhaër (International Tax Observatory) showed that book-tax differences are crucial for measuring profit shifting. Using French administrative data for 2014–2022, it finds that book profits are far above taxable income and explain only a limited share of its variation, which questions the use of financial statement data as a proxy for tax bases. A key point was that these differences are much larger for MNEs than for domestic firms, largely due to dividends. As a result, estimated profit shifting is substantially higher when taxable income rather than book profits is used, both in elasticity-based approaches and in comparisons between multinationals and domestic firms. The paper also showed that loss carry-forward rules play an important role, as reflected in strong bunching at zero taxable income. Overall, the presentation highlighted that measurement choices can materially affect estimates of shifted profits and the assessment of policies such as the Global Minimum Tax.

Camille Semelet (ifo Institute) examined unintended responses to anti-profit shifting rules by studying the introduction of the U.S. GILTI regime. The main finding is that firms exposed to GILTI significantly increased tangible investment in foreign affiliates, especially in intangible-intensive multinational groups. The key mechanism is the substance-based carve-out: because a routine return to tangible assets was exempt, firms could reduce GILTI exposure by increasing real assets abroad. This suggests that substance-based income exclusions can soften negative investment effects of anti-avoidance rules, but also open a new adjustment margin that effectively subsidizes tangible investment. The presentation therefore highlighted that anti-profit shifting rules may change not only reported profits, but also real firm behavior. At the same time, it raised the question whether the observed response reflects genuine economic expansion or mainly capital deepening, relocation, or tax-driven restructuring. Overall, the paper showed that the design of anti-avoidance rules matters greatly for their real and fiscal effects.

Jörg Peschner (DG TAXUD) argued that patents held by multinationals in offshore financial centres are often used for tax planning rather than for innovation or productivity gains. The evidence suggests that such patents help shift profits out of the EU, but do not raise the total factor productivity of affiliated firms located in the EU. A key point was that offshore patent structures become especially relevant when combined with EU subsidiaries in jurisdictions whose tax rules facilitate royalty payments without effective withholding taxes. In that sense, the offshore patent is a necessary condition, but the enabling factor is the presence of group entities in countries with legislation that allows these flows. The presentation also linked these patterns to broader changes in international tax rules. Royalty flows that previously moved through structures such as the Irish-Dutch route have shifted after anti-avoidance reforms and U.S. tax changes. Overall, the paper’s main conclusion was that many offshore patent locations are not driven by innovation needs, but by tax avoidance, and that withholding taxes on outbound royalties could help curb this form of profit shifting. 

The third session, chair by Matteo Duiella (DG EMPL), focused on Tax-benefit systems for households – Health, Housing, Climate change and Child Poverty.

Vincenzo Atella (University of Rome Tor Vergata) presented the EU-FEM, a dynamic microsimulation tool for health policy analysis adapted from the US FEM using harmonized SHARE data (9 European countries, plus ELSA and TILDA). Built on a first-order Markov Monte Carlo structure, the model tracks chronic disease outcomes (diabetes, cancer, heart disease, hypertension, stroke, lung disease), functional limitations, BMI and smoking, and is validated against SHARE and Eurostat life expectancy data. Key findings project rising chronic disease prevalence through 2050 with growing educational disparities, and show that prevention outperforms treatment in terms of life-years gained. The Long-Term Care (LTC) section reveals large cross-country variation in eligibility rules and demonstrates that targeted interventions reducing functional and mental limitations in people aged 65–75 could substantially lower LTC demand across Europe.

Rodrigo Martinez-Mazza (UCL) assessed the impact of Spain's 2019 reform extending minimum rental lease lengths from 3 to 5–7 years on tenant stability and landlord behavior. Using Catalonian microdata (2016–2024) and a regression discontinuity design around the March 2019 implementation date, the study finds that lease durations increased significantly, with individual landlords raising rents by 2.3% to offset reduced flexibility and corporate landlords rushing contracts pre-reform. Mid-term results show higher tenant stability and lower exit rates, particularly with corporate landlords, without triggering mass market withdrawals. The research fills a literature gap by focusing on lease-length extensions rather than traditional rent control, suggesting moderate regulations can enhance stability without severe supply distortions, though long-term affordability effects remain uncertain.

Tim Goedemé (Thomas Moro Campus Geel) explored how EUROMOD can address climate change through an inequality lens, highlighting five key dimensions: disparities in emissions contributions, policy impacts, climate vulnerability, and capacity to reduce emissions or adapt. Wealth is identified as a critical driver — affluent groups generate more emissions but face fewer risks, while poorer groups bear disproportionate burdens. He called for dynamic modelling scenarios capturing how different social groups decarbonize under climate policies, warned against overlooking harder-to-model behavioral changes, and stressed that climate policies may worsen inequality unless explicitly designed with distributional fairness in mind. The central message: equity must be the foundation of climate action, and tools like EUROMOD are essential to test integrated, targeted interventions.

Hugo Cruces and co-authors from the JRC's Fiscal Policy Analysis Unit, tackled child monetary poverty in Spain — the highest in the EU at ~29% — by combining EUROMOD microsimulation with an AI-driven optimization framework. Four instruments were evaluated against the 2023 baseline: a non-refundable child tax credit (the current, inefficient system), a refundable version, a Universal Child Benefit (UCB), and a means-tested benefit (CAPI). Building on Karpathy’s autoresearch concept, an AI agent using Optuna’s NSGA-II algorithm explored the policy design space and constructed a Pareto frontier trading off poverty reduction against fiscal cost. The optimal solution combines UCB (€161/month) and CAPI (€985/month at increased take-up), reducing child poverty to the EU average at a cost of €12.4 billion (0.83% of GDP). The authors note that computational speed remains the main bottleneck to full research automation.

The workshop concluded with a Roundtable on Stress-testing the welfare state: how can economic modelling better support policy preparedness?, moderated by Ana Agúndez. The panelists (Olivier Bontout, Nicola Gagliardi, Sara Riscado and Matteo Duiella, policy analysts and researchers working on welfare systems, macro-fiscal analysis, microsimulation and crisis programmes) reflected on how recent shocks — the pandemic, the energy crisis, the inflation episode and increasingly climate-related risks — have tested both European tax-benefit systems and the analytical tools available to support policy. 

A central reference point in the discussion was the idea of stress-testing welfare systems, inspired by earlier work in this area. The key message was that, just as stress tests have long been used in the financial sector to assess vulnerabilities under adverse but plausible scenarios, welfare systems should also be examined ex ante to understand how they would cope under major shocks.

A first major theme was which shocks matter most for welfare resilience. Two broad categories stood out: sharp unemployment shocks and cost-of-living or price shocks, both of which can have significant effects on household incomes and income distribution. Participants also noted that climate-related risks and demographic ageing are becoming increasingly relevant sources of pressure on public finances and welfare systems, although they differ in nature: ageing tends to be gradual and more predictable, while climate shocks are more volatile, nonlinear and difficult to model. The discussion also highlighted that shocks which may appear moderate at the macro level can still have major consequences at the household level, particularly for poorer households, pensioners, or other vulnerable groups. At the same time, many stress scenarios still assume smooth implementation and full take-up of support measures, whereas real-world frictions can substantially affect outcomes.

A second theme concerned how welfare systems respond when shocks hit. There was broad agreement that automatic stabilisers and discretionary measures should be seen as complements rather than substitutes. Automatic stabilisers remain essential, but recent crises have also required significant ad hoc interventions. The challenge is therefore to combine both more effectively and to make better use of existing instruments rather than designing entirely new measures under pressure. It was also noted that income support measures are usually more targeted and efficient than broad price measures, although governments often rely on a mix of both. Another key issue was the role of indexation rules, which can help preserve fairness and progressivity in tax-benefit systems during inflationary periods, but are often complex and politically sensitive.

A third theme focused on preparedness in practice. Participants noted that improvements in data availability and modelling capacity mean institutions should increasingly be able to move beyond reactive analysis and prepare ready-made scenarios for future shocks. This includes the capacity to assess rapidly the distributional and fiscal consequences of events such as energy price spikes or geopolitical disruptions. At the same time, an important gap remains the lack of stronger links across disciplines and modelling layers — for example between climate science and economics, between macro and micro analysis, and between local vulnerabilities and fiscal frameworks.

The discussion also touched on the role of EU-level instruments. While a genuine EU automatic stabilisation capacity could make economic sense, political constraints remain substantial. Nevertheless, recent experience showed that EU-level support mechanisms such as the SURE instrument deployed during the pandemic, can play an important stabilising role, even without creating a full supranational automatic stabiliser.

The overall takeaway was that stress-testing the welfare state is not merely a technical exercise, but a practical approach to policy preparedness. It can help identify vulnerabilities in advance, clarify trade-offs between speed, targeting and fiscal constraints, and improve the interaction between automatic stabilisers, discretionary measures and EU-level support. Compared with previous crises, the available data, models and institutional capacity are now significantly stronger. The challenge ahead is to connect these elements better and ensure that the next crisis finds policymakers more prepared both to analyse and to respond.

The distributional impact of transport fuel price increases following the war in the Middle East (08-04-2026)

Latest JRC Science for Policy Brief examines how the recent surge in transport‑fuel prices, caused by the conflict in the Middle East, affects EU households. Using the household microsimulation model EUROMOD, the authors quantify the distributional impact and assess policy options to protect the most vulnerable. To maintain pre‑conflict fuel consumption, average European households would need to spend around 1% more of their income on transport fuel. The extra burden is highest on the lowest income decile, which would see a 1.4 % rise in fuel spending relative to income, while the highest decile would face a 0.6 % increase. Temporary policy measures can meaningfully soften these effects: Targeted transfers are more progressive than a reduction in excise duties, although they involve a higher administrative cost. In addition to the immediate oil‑price shock, attention should also be given to the broader inflationary pressures on electricity, heating and food, whose impact will appear later. This research has been featured in the Employment and Social Outlook – Issue 3: EU Employment and Skills.

Congratulations to the team for this timely and important contribution.

February 2026

JRC Research on ETS2 and the Social Climate Fund Featured at DG EMPL Just Transition Workshop  (25-02-2026)

 JRC colleagues presented their work on the Emission Trading System 2 and the Social Climate Fund in three different sessions at the “Research for Just Transition Policy Workshop II” organized by DG EMPL in Brussels on 12-13 February. The workshop brought together researchers, experts, and policymakers to discuss the social and economic implications and distributional impacts of transitioning to a low-carbon, resource-efficient, and competitive economy.  

The underlying work was carried out jointly by JRC under the “Assessing and Monitoring Employment and Distributional Impacts of the Green Deal” (AMEDI+) and Social Climate Fund – Modelling Support (SCF-MS) Administrative Agreements. It uses the Green EUROMOD extension of EUROMOD combined with parameters resulting from energy modelling from JRC, for a detailed assessment of direct income support schemes, and policy measures related to buildings (heat pump installations, energy efficiency renovations) and transport (social leasing/electrical vehicle subsidies, transport vouchers). The workshop participants generally praised the high quality and the novelty of the JRC modelling analysis and provided useful feedback to further refine the analysis.  

Many thanks to the colleagues that have contributed to this work: Adrián Hernández, Antonio F. Amores, David Klenert, Duygu Güner, Gemma Riera, Ilda Dreoni, Paola De Agostini, Silvia De Poli, Sofía Maier, Matthias Weitzel and Umed Temursho.  

November 2025

Fiscal drag in theory and in practice across EU countries (26 November 2025)

The term fiscal drag refers to the increase in tax revenue that occurs when nominal tax bases grow but nominal parameters of progressive tax legislation are not updated accordingly. In collaboration with the Microsimulation Network of the European System of Central Banks,  JRC colleagues Chrysa Leventi and Alberto Mazzon used EUROMOD to investigate this phenomenon in 21 countries, including all Eurozone members and Hungary.  

The results of this work were recently made available as an ECB Working Paper. They show that, in most countries, a 1% increase in the tax base would result in a nearly 2% increase in personal income tax revenues if nominal tax parameters remained unchanged. Moreover, within countries, fiscal drag tends to disproportionately impact low- and middle-income taxpayers, reducing the overall progressivity of the tax system as incomes rise.  

JRC colleagues are currently working to integrating the simulation of tax-to-base elasticities in EUROMOD. This integration will allow users to easily generate these elasticities by modifying the parameters of EUROMOD Online. 

September 2025

2025 ESDE Review features new EUROMOD analysis on in-work benefits, childcare, and full-time participation tax rates (19 September 2025)

The Employment and Social Developments in Europe (ESDE) 2025 annual review is out now! Prepared by the Directorate-General for for Employment, Social Affairs and Inclusion, this flagship report analyses the main labour and social challenges in the EU. The 2025 edition focuses on policies to unlock Europe’s talent and raise labour force participation at a time of demographic change and persistent labour shortages.

JRC colleagues contributed new EUROMOD-based analysis to Chapter 3 on how tax-benefit systems shape work incentives. Using EUROMOD linked with the EUROLAB behavioural model, simulations show that introducing in-work benefits in 8 Member States would increase employment (up to +0.5%) and reduce poverty rates by as much as 5.6pp, with particularly strong effects for migrants and young people. In addition, new estimates of full-time participation tax rates reveal wide cross-country differences in the financial gains from moving from part-time to full-time work: in some countries workers retain most of their extra earnings, while in others nearly half is foregone through higher taxes or withdrawn benefits. 

Finally, our earlier EUROLAB analysis on childcare policies and female labour force participation is also cited, reinforcing the key role of family policies in supporting women’s employment.

Together, the findings underline how fiscal policy design can either strengthen or weaken labour supply incentives.

May 2025

UIMP Spring Course on Taxation and Inequalities, co-organized by JRC (30 May 2025)

From 28 to 30 May 2025, the Fiscal Policy Analysis Unit of the Joint Research Centre (JRC) co-organized the Spring Course of the Universidad Internacional Menéndez Pelayo (UIMP) in Seville, titled “Taxation and Inequalities”. 

The course was co-directed by Salvador Barrios, in collaboration with the Instituto de Estudios Fiscales (IEF) of Spain. The course brought together a distinguished line-up of speakers, mainly from Spanish academia, and gathered researchers, students, tax administration officials and policymakers to reflect on how tax systems can help address one of the EU’s key social and economic challenges: inequality.

Over three days, the programme covered a wide array of topics

• the redistributive power of tax systems
• the design and impact of personal income taxes, wealth taxation and consumption taxes, including environmental taxation
• the specific case of Spain, in both a national and EU-wide comparative perspective

The Fiscal Policy Analysis Unit played an active role throughout the course

• Ana Agúndez presented recent evidence on the redistributive effects of tax-benefit systems across the EU and tax policies that help addressing inequalities, drawing on research by the JRC and other analysis from the European Commission
• Mattia Ricci explored the distributional impacts of VAT reduced rates as per recent research based on the consumption tax extension of the EUROMOD model

This course exemplifies our commitment to collaboration with national institutions and academic partners. It also reflects our commitment to supporting EU priorities, including the European Pillar of Social Rights and the use of robust analytical tools to guide policy debates on fairness and inequality issues. 

For more information, including the full programme, open the document (available in Spanish). Thanks to all speakers, participants, and co-organisers for a highly enriching exchange — and look forward to continuing these discussions in future editions.

EUROMOD Training Delivered in China to Support Social Protection Reforms (07 May 2025)

Last week, EUROMOD travelled to China, where JRC colleagues Chrysa Leventi and Fidel Picos conducted a three-day training session in Beijing, organised by the International Labour Organization (ILO). The event was part of the “Improving China’s Institutional Capacity towards Universal Social Protection (Phase 2)” project, funded by the European Union, and was designed for government officials and academic researchers. 

The training aimed to enhance participants’ understanding of EUROMOD and demonstrate its potential to inform social policy reforms through microsimulation. Attendees are expected to explore the feasibility of developing China's own tax-benefit microsimulation model, based on EUROMOD, to support ongoing and future reform efforts. 

The course content was adapted from the general EUROMOD training delivered biannually by the JRC, tailored to meet the specific needs of the Chinese audience. It featured a combination of lectures, live model demonstrations, and hands-on exercises, enabling participants to deepen their knowledge and practical skills. Feedback from the participants was overwhelmingly positive.

March 2025

Meeting of the Working Group on Ageing Populations and Sustainability (AWG)

On 24-25 March, the JRC Pension Modelling team travelled to Brussels to take part in a meeting of the Working Group on Ageing Populations and Sustainability (AWG), a working group of the Economic Policy Committee (EPC), with the participation of Member States. The team contributed to discussions on pension analysis and ageing-related fiscal sustainability. Rocío Fernández-Bastidas and Dusan Stojanovic presented the EDGE-M3 general equilibrium model, highlighting its potential as a complementary tool for policy analysis of pensions and tax reforms. The insights from the presentation, including a counterfactual scenario on deferred retirement age, generated interest and exchanges among Member States' representatives. The meeting provided a valuable opportunity to share our work, gain feedback, and align with colleagues on upcoming priorities in the field. This work is part of an Administrative Agreement with DG ECFIN. 

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 the Directorate-General for Employment, Social Affairs and Inclusion. 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.

November 2024

Conference  "Desafíos y horizontes de la garantía infantil en España"

On November 14, 2024, our colleagues Hugo Cruces and Kateryna Bornukova (JRC) participated in the conference "Desafíos y horizontes de la garantía infantil en España", focused on child poverty in Spain, and that was held in Barcelona. Organized by DG EMPL, the Spanish Ministry of Employment, and La Caixa Foundation, the event brought together around 70 experts, including government officials, academics, NGO representatives and beneficiaries to address one of Spain's pressing challenges.  

The conference highlighted findings that align with JRC's ongoing research: despite economic growth, child poverty affects one in three children (34.5%) in Spain, and has been increasing recently even while general poverty decreased. Hugo contributed to the first roundtable examining this apparent paradox, while both colleagues later led an afternoon working group about policy solutions. JRC's work has been instrumental in analysing the impact of current measures, like the Spanish Minimum Income. The discussions also explored successful international examples, with Poland's universal child subsidies standing out for having halved child poverty.  

These valuable insights will directly contribute to the European Commission's upcoming Anti-Poverty Strategy, reinforcing JRC 's role in bridging research and policy-making. Looking forward to seeing these findings translated into effective actions! 

September 2024

ESDE Annual review of 2024

The Employment and Social Developments in Europe (ESDE) Annual review of 2024 was published this week. Written by staff of DG EMPL, the ESDE review is the European Commission’s analytical flagship report in the area of employment and social affairs. The 2024 edition includes a section on promoting upward social convergence, which contains contributions from JRC colleagues Chrysa LEVENTI, Alberto MAZZON, and Andrea PAPINI. 

JRC colleagues used EUROMOD to study the income stabilisation properties of the tax-benefit systems of EU-27. Income stabilisers are built-in parts of the fiscal system that vary with changes in economic activity in a way that tends to stabilise income during exogenous shocks. These features of the tax-benefit system provide the ability to cushion shocks, lessening the impact of drops in market income on households. The analysis found significant variation in the degree of income stabilisation across Member States tax-benefit systems. On average, in 2022/2023 they were found to absorb almost half of the hypothetical market income shock simulated in EUROMOD.  

July 2024

HFCS supporting microsimulation modelling via EUROMOD (12-07-2024)

The European Central Bank and the Joint Research Centre (JRC) of the European Commission have signed an agreement to link HFCS data to EUROMOD, the EU tax-benefit microsimulation model maintained by the JRC. EUROMOD is the JRC’s flagship model for calculating the effects of taxes and social benefits on households and work incentives for each EU country and the EU as a whole. 

In recent years the JRC has, in close collaboration with the ECB, been using the HFCS to develop a new extension of EUROMOD. This extension allows economists to generate household-level data on net income after taxes and social benefits using the HFCS survey, and will help us better understand how monetary policy affects household incomes and work incentives.

2024 Annual Report on Taxation published, with contributions from B2 Fiscal Policy Analysis Unit  (10-07-2024)

Last week, DG TAXUD published the 2024 edition of the Annual Report on Taxation (ART), the flagship annual EC publication presenting facts and analysis of the state of play of tax systems and tax policy in the EU. This year’s edition focuses on the development of the tax mix from various perspectives, challenges faced by the different types of taxes, how their design can affect economic agents’ behavior, and the contribution of tax systems to a competitive EU economy.

As in previous years, the ART includes several contributions from the JRC.

In the area of corporate taxation, the fragmentation of the EU tax system remains a significant barrier to cross-border economic activity in the EU Single Market. The current framework, based on 27 national tax systems, is inherently complex, leading to high compliance costs, especially among SMEs, and opportunities for tax avoidance and evasion. JRC research based on the Cortax model shows that tax simplification, consisting of lower tax compliance costs and incentives to expand cross-border, can increase firm productivity and have significant long-term effects on GDP and tax revenues.

In addition, drawing on our EUROMOD model, the report zooms in the fairness aspects of recent reforms of personal income taxation to address inflation in selected Member States (i.e. indexation to inflation mechanism introduced in Austria, changes in the tax brackets and/or tax allowances in Portugal and Lithuania).

Such assessments of the budgetary and distributional impacts of tax-benefit reforms, both at EU and national levels, are key instruments at the disposal of policymakers to fine-tune reform proposals and increase the acceptance of changes in the tax codes.

Beyond informing the policy debate, these inputs contribute to the already close collaboration between JRC and DG TAXUD!

JRC simulation of inheritance taxation in Austria made it to the headlines  (10-07-2024)

The recent report on 'Inheritances in Austria: A Model Estimation of Intergenerational Wealth Transfers up to 2050', co-authored by our colleague Klaus Grunberger in JRC, together with Vienna Chamber of Labour, made it to the headlines in the Austrian newspaper Der Standard and was also discussed in other media.  

The study uses the JRC’s inheritance microsimulation model INTAXMOD to estimate current and future inheritances, shedding light on the potential impact of reintroducing inheritance taxation in Austria. This work also illustrates the way the ageing challenge represents an opportunity to enhance the fairness of tax systems, given that wealth accumulation and wealth transmission are important factors explaining the persistence in income inequality across generations.  

 Key findings of the study: 

 - Doubling of inheritance volume: the annual volume of inheritances is projected to double until the year 2050 in Austria. This is due in part to demographic changes, as particularly high-birth cohorts reach the end of their lives. On the other hand, the cohorts bequeathing their wealth during this period are also relatively wealthy. The increase in inheritance tax revenue is therefore explained by both an increase in the number of inheritance cases and by higher average inheritances. 

 - Concentration of wealth: inheritances are highly concentrated in the upper percentile of the distribution, indicating that the wealthiest segments of the population will continue to receive the largest transfers. 

 - Potential tax revenues: if inheritance taxes were reintroduced in Austria with an exemption threshold of €1 million, only 0.2% of heirs would be affected. Even with a €500,000 exemption, less than 1% of heirs would be affected, yet substantial revenues could be generated. 

 A very interesting application of our JRC modelling tool for the simulation of inheritance taxes! Congrats, Klaus! 

May 2024

Network on Welfare and Policy in Latin America and the Carribbean (WAPLAC) in San José, Costa Rica (29-05-2024)

Salvador Barrios participated to the first workshop organised by the Network on Welfare and Policy in Latin America and the Carribbean (WAPLAC) in San José, Costa Rica, 9-10 May 2024.  This two-day conference aimed to take stock of recent research on fiscal and welfare policies, inequality, wellbeing, labour market dynamics, support for democracy, and other social outcomes in LAC. 

This event evidenced the growing role of microsimulation models to support public policy decision making. The relevance of the EUROMOD model in this context, both as modelling platform used to develop non-EU models, as it is the case in many Latin American countries, and as a tool extensively used by the European Commission services, was particularly salient. During the roundtable organised at the end of the event, Salvador shared the EU experience on the use of EUROMOD to support policy recommendations and proposals by the European Commission. The discussion highlighted the usefulness of access to administrative data to support social policies and the role microsimulation model can play in terms of designing and assessing these policies when availing of such data. 

The other panel participants included Yorleny León (Minister for Human Development and Social Inclusion, Costa Rica), Roberto Guillén (Vice-Rector, University of Costa Rica) and Lisseth Rodríguez Garita, (Executive director of the Sistema Nacional de Información de Registro Único de Beneficiarios). The talk focused on the role of data, in particular administrative data, models and economic analysis to support social policy making. It was also the occasion to promote the recent completion of the CRiMod model, the tax and social benefits microsimulation model for Costa Rica, which uses the EUROMOD platform and is coordinated by Prof. Luis Vargas Montoya. 

Agreement on Faster and Safer Relief of Excess Withholding Taxes (FASTER) (22-05-2024)

Last week, the EU Council reached agreement on the proposal for a “Faster and Safer Relief of Excess Withholding Taxes (FASTER)” Directive. This is a key initiative to reinforce the Capital Markets Union through more efficient, secure and simplified tax procedures. Under the current rules, in the case of cross-border investments, many Member States levy withholding taxes on dividends and interests paid to investors who live abroad. However, investors must still pay income tax in their country of residence for the same income, and then, to avoid the double taxation, submit a refund claim. These refund procedures are often lengthy, costly and cumbersome, causing frustration for investors and discouraging cross-border investment. The FASTER initiative will make these refund procedures faster, simpler and more harmonised across the EU. 

JRC colleagues Serena Fatica, Jon Pycroft, Daniel Stöhlker and Andrzej Stasio supported DG TAXUD in the economic impact assessment of this initiative. The JRC analysis quantified the costs associated with the current procedures and, using econometric methods, showed that investors are highly sensitive to these barriers and that reducing excess withholding taxes can increase cross-border investment. Then, using the CORTAX model, our colleagues provided evidence on how eliminating the costs associated with these refund procedures would lead to an increase in GDP, capital, wages and employment. 

The general approach announced by the Belgian Presidency of the EU Council on the Commission's proposal for the FASTER Directive marks another milestone for the collaboration between the JRC and DG TAXUD on EU tax reforms. 

Celebrating Europe's Day (15-05-2024)

The Centro de Documentación Europea de Córdoba (uco.es) actively promotes teaching and research on the European integration process in the academic world. Last week, on the occasion of Europe's Day, it organised the 33rd European Week, including conferences on key EU topics. 

Our colleague Ana Agundez had the opportunity to discuss with participants on “Single Market and fiscality”, highlighting remaining tax barriers and how the JRC.B2 unit has contributed to recent Commission proposals in the area of taxation for a more integrated, competitive and fairer internal market. 

February 2024

Key role of EUROMOD in the Commission’s initiative for better distributional impact assessments of Member States’ policy reforms (14-02-2024)

In order to promote a more systematic use of distributional impact assessment (DIA) across Member States, the European Commission organises conferences and mutual learning events, which constitute a forum for exchange of practices between national experts.

The ‘8th Mutual Learning Event on DIA: Reflecting on progress and looking ahead’ took place last week in Brussels. The event was organised by DG EMPL and gathered representatives and from almost all Member States, as well as from SPC, EMCO, EPC and the OECD.

Andrea Papini set the scene in the working group on “DIA in practice (modelling, access to and use of data)” and Chrysa Leventi participated in the working group on “Evidence-driven design of benefits (examples of DIA for tax-benefit reforms)”. EUROMOD was widely mentioned and promoted as the reference model for assessing the distributional effects of tax and benefit policies. Participants from Member States in which DIAs are still not performed showed a great interest in learning more about the model and participating in future EUROMOD trainings.

November 2023

Collaboration JRC and UNU-WIDER (29-11-2023)

Collaboration between the JRC and the UNU-WIDER The JRC has concluded an important Collaborative Research Arrangement with the United Nations University World Institute for Development Economics Research (UNU-WIDER) that will further extend the geographical reach of the EUROMOD Microsimulation maintained by JRC and UNU-WIDER’s flagship SOUTHMOD project aims to develop and promote tax-benefit microsimulation models in the Global South. Building on the successful EUROMOD platform, SOUTHMOD facilitates rigorous policy analysis and fosters evidence-based decision-making in the developing world. 

This collaboration will focus on further expanding the understanding of taxes and social policies in developing countries, strengthening technical capabilities in microsimulation modelling and related software development. It will notably facilitate the fiscal and distributional assessment of policy reforms in order to help governments design policies that reduce poverty, inequality, and ensure sustainable economic growth. 

Spanish newspapers on “Inflation, fiscal policy and inequality” (22-11-2023)

Top Spanish newspapers (now El Mundo again) continue referring to the results of the joint JRC-ECB study on “Inflation, fiscal policy and inequality”. 

Speech about Distributional Impact Assessment (DIAs) at the European Social Forum (22-11-2023)

Salvador Barrios spoke about the role of Distributional Impact Assessment (DIAs) at the European Social Forum that took place on the 16-17/11 in Brussels. Given that the Twin transition is expected to have a profound impact on the way our economy and society function, it is paramount to consider its distributional dimension upfront, leaving “no one behind” President Von Der Leyen own words. 

In the coming years Member States will adopt reforms in order to meet ambitious environmental targets. These policies could potentially have significant distributive impacts and affect more particularly those at the lower end of the income distribution. The JRC, together with DG EMPL and DG REFORM, is actively promoting the use of DIAs in order for the Member States to systematically address these concerns.

The EUROMOD model maintained by the Joint Research Centre plays a key role in this context, given that it provides a common platform for carrying out DIAs and promoting the dialogue between the Commission and the Member States in the area of tax (including green) and social reforms.

Spanish newspapers on “Inflation, fiscal policy and inequality” (08-11-2023)

Top Spanish newspapers (now El País and El Mundo) continue referring to the results of the joint JRC-ECB study on “Inflation, fiscal policy and inequality” recently published as ECB Occasional Paper co-authored by colleagues: Antonio F. Amores, Paola De Agostini, Silvia De Poli, Sofía 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). 

EDGE-M3 pension model presentation at the US National Tax Association in Denver (01-11-2023)

The EDGE-M3 pension model was presented by colleague Rocío Fernández Bastidas, at the 116th Annual Conference of the National Tax Association in Denver, November 2-4. She presented “Heterogeneous Effects of Pension Reforms in the EU: A General Equilibrium Perspective” as part of a session on Pension Policy in Lifecycle Models, which featured academics from various US universities and the Joint Committee on Taxation of the US Congress.

September 2023

EUROMOD Annual Meeting and Research Workshop (22-09-2023)

The EUROMOD Annual Meeting and Research Workshop took place on 20-22 September in JRC-Seville. The event, organised by JRC, brought together EUROMOD practitioners from all over the EU, who discussed about the future of the model and the state-of-the-art research performed with it.

Ongoing collaboration with European Central Bank (ECB) (09-2023)

The ECB and JRC are currently preparing a collaboration agreement in order to foster the use of EUROMOD using the Households Finance and Consumption Survey collected by the ECB, the national central banks of the Eurosystem and a number of national statistical institutes. The ECB and national central banks have expressed strong interest in developing the use of EUROMOD using this data. The ECB and JRC have also recently collaborated on a joint study in order to assess the impact of anti-inflationary measures, to be published soon by the ECB.  (including green) and social reforms.

Presentation at ECB (20-09-2023)

Salvador Barrios presented JRC activities on costing of fiscal reforms using the EUROMOD model at the 4th Joint Workshop of European Independent Fiscal Institutions and the European System of Central Banks (ESCB). The workshop, entitled “European fiscal policy and governance reform in uncertain times”, was organised at the European Central Bank premises in Frankfurt. Fabio Panetta, Member of the Executive ECB´s Board, made the introductory speech of this event.