Cover of EconPol Policy Brief 52

The Role of Income Support Systems as Income Stabilizers in Times of Crisis

Mathias Dolls, Max Lay

Key Messages

  • This policy brief studies how tax and benefit systems in Europe in general, and unemployment benefits and minimum income support (MIS) systems in particular, perform in terms of income stabilization under comparable shock scenarios.
  • Nordic and Continental European welfare states tend to provide higher income stabilization compared to Post-Socialist, Southern European and Liberal welfare states.
  • MIS systems play only a limited role in the stabilization of household incomes. The importance of MIS schemes increases when macroeconomic shocks last longer.
  • Countries with higher coverage rates of unemployment insurance and MIS systems provide a higher level of income insurance for the unemployed.
Abstract

This Policy Brief examines how minimum income support (MIS) schemes contribute to the stabilization of disposable incomes in times of crisis in Europe. MIS systems act as a “safety net of last resort” in many European welfare states, but to varying degrees. The results from the simulation of stylized unemployment shocks hitting labor markets suggest that the tax-transfer system overall contributes to income stabilization in periods of crises. However, the MIS schemes’ individual contribution is relatively small, especially as set against the unemployment insurance system.

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EconPol Policy Briefs
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EconPol Policy Report 40
Citation

Mathias Dolls, Max Lay: “The Role of Income Support Systems as Income Stabilizers in Times of Crisis,” EconPol Policy Brief 52, June 2023.