“Differential Welfare State Impacts for Frontier Working Age Families” Irina Burlacu PhD candidate, Maastricht University Cathal O'Donoghue, Teagasc 2 nd Microsimulation research workshop, Bucharest, Romania October, 2012

Outline 1. Introduction 2. Research questions and objectives 3. Methodology 4. Results: Unemployment benefits 5. Vertical redistribution 6. Horizontal redistribution 7. Conclusions.

Source of the data: “Scientific Report on the Mobility of Cross-Border Workers within the EU-27/EEA/EFTA Countries”, Nerb G. et al., (2009). Source of the map: BE 284,000 FR 117,000 DK LU GE NL A T BE Switzerland In the European Union: ~10 mln. people move for work (out of 502,539,509 mlns.) ~ 1 mln. work in one country and reside in another (frontier workers) Strong regional focus - most of these people come just across the border, and important EU objective – free movement for work.

1. Introduction Mobility for work in the EU is increasing and this implies interaction between two or more social security and tax systems. Differences in affects mobile benefits and earner’s income taxes

Social Security Coordination (Regulation 883/2004) To promote free movement of persons Bi-lateral Tax Treaties To avoid double taxation EU supranational and national legal framework play a decisive role in determining the welfare of mobile earners. Brief structure:

The structure of current legal framework leaves unaffected the differences between the national social security systems. At the same time.. 1) Current Regulation 883/2004 unevenly affects mobile earners; 2) The aim of the current legal framework is to protect migrants/mobile earners’ social rights, however, other dimensions are also important, but not considered, such as: income inequity, poverty alleviation, taxation.

Research question & objectives To what extent does a welfare state achieves its objectives on its residents equally as on its residents who commute to another country for work. O1. Unemployment insurance O2. Vertical redistribution O3. Horizontal redistribution

The literature in the field focuses largely on: legal implications (Mei van A.P., 2003; Dougan M., 2009; Pennings F, 2010) social policy dimension: role of the citizenship in accessing welfare, migration regimes, convergence trends in social securities (Sainsbury D., 2005, 2006; Greve B., 2010); *Insufficient empirical evidences on the impact of tax-benefits differential policies.

Methodology A model of two tax-benefit systems is built up using using tax-benefit microsimulation to assess the loss/gain in income depending on earner’s location. Selected country cases: Luxembourg and Belgium Hypothetical cases

Unemployment benefits A mobile earner pays taxes and unemployment contributions in the country of work, therefore would be expected to be eligible to unemployment benefits in that country. Problem: When unemployed, those residents who previously worked in another country are prone to suffer income disadvantages, having lower unemployment benefits than those who did not commute for work, despite paying higher contributions.

Unemployment benefits Minimum benefit Maximum benefit Minimum benefit Maximum benefit “This rule is quite problematic, since it deprives an unemployed person of benefits for which s/he has paid contributions” (Pennings F., 2010) No regulation applied Regulation applied

Results: Vertical redistribution To what extent the existent tax treaties and taxation systems affects vertical redistribution of incomes among the residents and frontier workers of Luxembourg and Belgium. Taxation instruments such as credits and deductions create large discrepancies in income of frontier workers. Earners residing in Belgium and working in Luxembourg have the highest disposable income

Does moving to another country for work makes a difference for a couple with children or without children? Results: Horizontal redistribution The needs of a Belgian frontier couple working in Luxembourg are double are met than of a Luxembourgish one, *they score with highest equivalence scales than all types of families (with children, single, mixed)

Conclusions Once residents decide to commute, their income could either be positively (Belgian case) or negatively (Luxembourgish case) affected depending if pro-mobility policies are in place, not by the objectives of the welfare state. The existent legal framework does not address the differences between system, however these significantly can affect the welfare of mobile earners. The results of the analysis show that: 1) the current provisions on unemployment could negatively affect the income of frontier workers, if applying current regulation; 2) taxation instruments play an important role in determining the income of frontier workers (Luxembourgish tax credits, mobility deductions) ; 3) Work mobility creates vertical and horizontal inequity in society.