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Taxes and Welfare State

Taxes and budget can be characterized as emotionally charged subjects in public discourse; charges are often referred to in combination with the question “who pays, who benefits?” An important aspect of this case are tax reforms and their effects. Regarding the welfare state, differences within and between generations must be addressed simultaneously with employment stability, inequality over the life cycle and inter and intragenerational disparities.

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Taxes and budget

Taxes and fees are the foundation of the financing of the welfare state. A “fair” tax system is highly controversial term and is discussed within the general public accordingly; the interaction of different laws and their exceptions complicate the overall analysis of this area. Questions arise concerning the tax burden at different points among income and wealth distributions in combination with the question who benefits or loses from reforms. Furthermore, it is important to analyze the way tax revenues change.

 

Simulation model TAXSIM

This model can be characterized as a virtual tax authority on the basis of official micro data. Current rules and reform proposals are compared within the framework of the model: projections of revenue effects and computations with respect to financial compensation can be made. The income tax reform 2015/16 serves as an example:

  • significant ease of the burden along the entire income distribution;

  • women benefit less than men as they are mainly represented in lower income groups; and

  • implementing only the reform without adding counter financing measures would increase inequality

The burden of households

This area will be analyzed in cooperation with the organization respekt.net; while interlinking various sources of data like:

  • survey of steuerzahlen.at

  • consumer survey of Statistik Austria

  • wealth related data of the OeNB 

we will try to calculate the overall tax-burden, if one considers all charges, fees and duties together. Moreover, questions concerning the actual progressivity of the system shall be answered.

Inheritance taxes

Thomas Piketty characterizes the 21st century as the era of heirs. An analysis of the HFCS 2010 shows:

  • the number of inheritances will rise (baby boomers)

  • the average value of inheritances will also rise (uninterrupted accumulation)

The volume of inheritances will more than double, from EUR 10 billion to EUR 25 billion per year. An inheritance tax would be conceivable in this respect as an automatic stabilizer.

Differences within and between generations

An important aspect of taxes and the welfare state are structural and institutional changes, e.g. increasing labor market flexibility and technological progress. Particularly affected are labor market newcomers, i.e. younger generations. The potential consequences of this kind of inequality are high fluctuations in income and higher income risk and rising inequality between generations; so far there are only a few empirical studies concerning long-term developments on this subject in Austria.

 

Employment stability of labor market newcomers in Austria

Increasingly fragile employment biographies imply higher income risk and have long-term consequences, especially when (as it is the case in Austria) participation in the labor market and social security are closely linked.

Even though the topic is rather present in media discussions, just like the subject above, there are only few studies in Austria concerning employment stability.

 

Income inequality with respect to the individual life cycle

Studies in other countries and the first results of the research project 1 suggest that younger generations are more frequently confronted with fluctuations in income than older ones. This aspect will be analyzed in research project 2 based on the data of the Main Association of Austrian Social Security Institutions:

  • how do income characteristics of different cohorts differ?

  • what are differences within and between cohorts?

 

Consequences of job losses on young employees

Economic literature often assumes that the loss of employment for young workers would only have a minor, short-term impact. However, considering the existing empirical analyses for the United States, the loss of a job for people at the beginning of their working career has negative consequences. Whether this also applies to Austria is to be examined here.