Do Tax-Benefit Systems Cause High Replacement Rates? A Decompositional Analysis using EUROMOD

This paper considers utilising a cross-country microsimulation tax-benefit model for Europe, EUROMOD, to simulate the distribution of replacement rates for four European countries, Denmark, France, Spain and the UK. In particular we show the important role of household composition and the presence of other household members' incomes in preserving the standard of living while out of work compared with the impact of the tax-benefit system. Given this strong influence of primary incomes, replacement rates are not necessarily the best indicator of the impact of the tax-benefit system in this respect.