“How long is too long? Long-term effects of maternity-related job interruptions on mothers’ income in 10 European countries”

by Giulia M. Dotti Sani, Matteo Luppi; CIRCLE Working Paper

Tax expenditures are exceptional tax treatments with respect to a generally agreed benchmark tax system. They are granted to categories of tax-payers with the aim to achieve specific socio-economic and political goals. Tax expenditures are widely used by EU Member States but little is known on their effectiveness and efficiency. Nevertheless, in the present context of constrained public budgets, policy recommendations often call for streamlining them.This paper quantifies the fiscal and distributional impact of pension-related tax expenditures in 27 European countries using EUROMOD, the EU-wide microsimulation model. We focus on the tax expenditures related to the accumulation and decumulation phases of II and III pension pillars. We find that pension-related tax expenditures can have a sizeable revenue cost and strong impact on inequality and poverty reduction. Moreover tax expenditures tend to be progressive at two levels. First, among elderly by favouring lower income pensioners, mainly through a favorable treatment of pension incomes. Second, among working-age individuals, through partial or no deduction of pension contributions, draining resources from those at the top of the income distribution.

The paper can be dowloaded at http://circle-cerp.carloalberto.org/output/