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Differential Welfare State Impacts for Frontier Working Age FamiliesIrina BurlacuPhD candidate, Maastricht UniversityCathal O'Donoghue, Teagasc 2nd Microsimulation research workshop, Bucharest, Romania 11-12 October, 2012

OutlineIntroduction Research questions and objectivesMethodologyResults: Unemployment benefits Vertical redistribution Horizontal redistributionConclusions.

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: http://lib.utexas.edu/maps/europe.html78.000 BE284,000 FR117,000 DK127.000 LU86.000 GE58.000 NL48.000AT39.000 BESwitzerland 206.000In 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. IntroductionMobility for work in the EU is increasing and this impliesinteraction between two or more social security and taxsystems.

Differences in affects mobile benefits and earners incometaxes

Social Security Coordination (Regulation 883/2004)

To promote free movement of personsBi-lateral Tax Treaties

To avoid doubletaxation

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.

MethodologyA model of two tax-benefit systems is built up using using tax-benefit microsimulation to assess the loss/gain in income depending on earners location.

Selected country cases: Luxembourg and Belgium

Hypothetical casesUnemployment benefitsA 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 benefitsMinimum benefitMaximum benefit Minimum benefitMaximum 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 regulationappliedRegulationappliedResults: Vertical redistributionTo 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 redistributionThe 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)ConclusionsOnce 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.