Do welfare state taxes and transfers reduce gender income inequality? : evidence from eight European countries

We complement the institutional literature on gender and the welfare state by examining how taxes and transfers affect the incomes of men and women. Using microsimulation and intra-household income splitting rules, we measure the differences in the level and composition of individual disposable incomes of men and women in eight European countries covering various welfare regime types. We quantify the extent to which taxes and transfers are able to close the gender gap in earnings, as well as which policy instruments contribute most to reducing the gap. We find that with the exception of old-age pensions, taxes and transfers - both contributory and means-tested - significantly reduce gender income inequality but cannot compensate for high gender earnings gaps. The equalizing effect of benefits is higher than that of taxes but varies significantly not only across countries but also across groups with different demographic characteristics.