Distribution Effects to be Expected in Austria if the Tax Regime for Low Incomes from Work is Alleviated. Results of a Microsimulation

Income from work is subject to a high tax burden, which at the lower end is mostly the result of high social insurance contributions. Alleviating this burden by reducing contributions to social insurance for low-income employees would increase the monthly net income by 5.2 percent for 90 percent of the low-wage employees, as is shown by an estimate using WIFO's microsimulation model. The effect would be particularly large for part-time workers. Nevertheless, the distribution of (equivalised) disposable household income would hardly change at all, and the net income situation of the working poor would improve only slightly. Achieving greater net income effects at household level would require not just introducing an adequate progressive regime for social insurance contributions but also reducing the high marginal and average tax burden for the lower and medium income levels of the current wage tax system.