The economic crisis and the austerity measures to counter it are widely expected to cause poverty and inequality to rise sharply. In this work it is taken into account the situation of four European welfare states which are among the worst hit by the crisis. However, the degree of fiscal consolidation they have set out to achieve varies, and so does the policy mix chosen to achieve it. This analysis addresses the question of how socially fair that policy mix is.
Which measures count as austerity measures?
In some countries explicit packages of reforms have been labeled as austerity measures. While mostly involving tax increases and cuts in social benefits and public sector pay, they may also include increases in some benefits or reductions in taxes for certain groups to be protected. In any case, the package as a whole can be easily identified. In other countries it is not so clear how policy would have evolved in the absence of the budgetary crisis.
The counterfactual.
The way in which the base scenario is simulated (i.e.”what would have happened in the absence of the crisis”) is critical for the evaluation of the effects of the austerity measures. It is also noticeable that the time periods not only span different lengths of time but also refer to different periods in times across countries, depending on the period in which austerity measures have been introduced. In each case the pre-tax and benefit income level and distribution is drawn initially from data from the recent, pre-crisis past.
Which measures can be simulated?
In most countries austerity measures take the form of some combination of: (i) reductions in cash benefits (and public pensions); (ii) increases in direct taxes and contributions; (iii) increases in indirect taxes; (iv) reductions in public services that have an indirect impacton the welfare of households using them; (v) reductions in public expenditure that cannot be allocated to households (e.g. pure public goods like defense spending) and increases in taxes that are not straightforward to allocate to households; (vi) cuts in public sector pay (vii) cuts in public sector employment.
The eventual effect on the public budget will be the net effect of these changes.
These simulations are effectively measuring the effects of the austerity measures on populations with pre-crisis characteristics. This work do not attempt to model here behavioral or macro-economic effects.
Specifically, wider aspects of the crisis beyond the austerity measures are ignored, even though the latter may arguably aggravate the former, at least to some extend.
The European tax-benefit model EUROMOD
EUROMOD is a multi-country, Europe-wide tax-benefit micro simulation model that provides measures of direct taxes, social contributions and cash benefits as well as market incomes in a comparable way across countries.
For the full work of European Commission visit: Http://ec.europa.eu/social/BlobServlet?docId=6726&langId=en
The problem with the austerity measures is that they are punishing the poor for the mistakes of the rich this is why people have lost their confidence in politiciens and it is increasingly difficult for them to believe that officials are well-intentioned. Crisis is due to poor management of public money, which led to increasing demand for loans from the IMF. Then, my suggestion would be to act in this direction: to execute more control on expenditure and money management instead of penalizing ordinary people for some problems they haven't caused.
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