August 2024
VoxEU column by JRC colleagues on the effects of the cost-of-living crisis
In a recent VoxEU blog post, JRC colleagues RICCI Mattia and STÖHLKER Daniel, 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!
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 GRUNBERGER Klaus 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!
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, PYCROFT Jonathan, PICOS Fidel and NAVARRO Silvia 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 24th 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 BARRIOS Salvador and AGUNDEZ Ana.
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!.
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, PYCROFT Jon, STOEHLKER Daniel and STASIO Andrzej 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 occassion of Europe's Day, it organised the 33rd European Week, including conferences on key EU topics.
Our colleague Agundez Ana had the opportunity to discuss with participants on “Single Market and fiscality”, highligting 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.
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 DE AGOSTINI Paola, DREONI Ilda, RICCI Mattia and AMORES Antonio F.
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 (AMORES Antonio F., DE AGOSTINI Paola, DREONI Ilda and RICCI Mattia) 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 (PICOS Fidel, PAPINI Andrea and RICCI Mattia) 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 NAIMER Sabine, CRUCES Hugo, NTELIS Fotis and HERNANDEZ Rocio!
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 Estudio Fiscales. Her speech was very inspring, 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.
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.
PAPINI Andrea set the scene in the working group on “DIA in practice (modelling, access to and use of data)” and LEVENTI Chrysa 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.
January 2024
EUROMOD training at the European Central Bank (31-01-2024)
PAPINI Andrea, PICOS Fidel and RICCI Mattia 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!
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)
BARRIOS Salvador 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 AMORES Antonio F , DE AGOSTINI Paola, Silvia [dot] DE-POLIec [dot] europa [dot] eu (DE POLI Silvia ), MAIER Sofía and RICCI Mattia. 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 FERNÁNDEZ BASTIDAS Rocío, 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.
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 LEVENTI Chrysa and MAZZON Alberto 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 MAIER Sofía, DREONI Ilda and AMORES Antonio F. 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 DREONI Ilda, LEVENTI Chrysa, PAPINI Andrea, PICOS Fidel and SERRUYS Hannes.
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 AMORES Antonio F., DE AGOSTINI Paola, DE POLI Silvia, MAIER Sofia and RICCI Mattia.
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 AMORES Antonio F., DE AGOSTINI Paola, DE POLI Silvia, MAIER Sofia and RICCI Mattia.
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).
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)
BARRIOS Salvador 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.