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The Redistributive Effect of the Romanian Tax-Benefit System: A Microsimulation Approach
Keywords
Income distribution, Redistributive effect, Tax-Benefit System, Income inequality, Microsimulation
Abstract
This paper attempts to investigate the income distribution of Romanian households, focusing on the role of the tax-benefit system in income redistribution. We evaluate the redistributive effect by estimating income inequality changes due to tax-benefit components. We use EU-SILC microdata and the EUROMOD microsimulation model to simulate income components. The results point out that income inequality is considerably reduced through the tax-benefit system, as a great deal of income is redistributed among households. The analysis of the income components that contribute to inequality reduction emphasizes that pensions, personal income taxes and social benefits are in favour of inequality reduction, while social contributions act the opposite way. Our results are sensitive to social and fiscal policy changes.