Analysis of the effects of social and fiscal policy on incomes during the COVID-19 pandemic in Romania

Abstract

The increase in income inequalities from one period to another for certain vulnerable groups are realities faced by most countries of the world, and these aspects have been accentuated by the effects of the measures imposed as a result of the COVID-19 pandemic. These situations first oblige governments to take concentrated and integrated actions in order to improve the effects of these phenomena on people’s well-being and social inequalities. The main mechanism by which the state ensures a more equitable distribution of income is the system of social benefits, along with the system of direct and indirect taxation. In this study, we evaluated the capacity of the social benefits system, respectively of the direct and indirect taxation systems, to contribute to the reduction of inequalities and the increase of the population’s well-being in Romania. For this purpose, income microsimulation techniques were applied on microdata from the Household Budget Survey for Romania and indicators to evaluate income redistribution and progressivity of the tax-benefit system were calculated. The results were discussed for detailed tax and benefit instruments and compared in the light of progressivity and effectiveness in inequality reduction. Following the analysis, no significant changes in the estimated redistributive effects were observed in 2020 compared to previous years, although the year 2020 was affected by the COVID-19 crisis.

Keywords

• income inequalities
• social transfers
• taxation
• covid-19 effects