The distributional effects of fiscal adjustment measures across income groups

Abstract

Public budget consolidation measures are often implemented as index cuts to benefits or increases in income taxes. These measures have both distributional and employment effects. This PT Policy Brief presents results calculated using the SISU model on the effects on disposable income by income group, in the case of either a 0.4 percentage point increase in the state income tax schedule or a cut to the national pension index. In both cases, public finances would be strengthened by EUR 180 million, but the distributional effects differ substantially.

As shown in the accompanying figure, index cuts are heavily concentrated on the lower income deciles, whereas income tax increases primarily affect the upper deciles. When accounting for the employment effects of the changes, the overall picture changes only slightly. (AI translation)

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