The sensitivity of poverty rates to macro-level changes in the European Union

Abstract

The authors use the European Union-wide tax–benefit model, EUROMOD, to establish baseline rates of relative poverty in 1998 for each of the Member States and then explore their sensitivity to (a) an increase in unemployment, (b) real income growth and (c) an increase in earnings inequality. They find that poverty rates are sensitive to such ‘macro-level’ changes but that the size—and in some cases the direction—of the effect varies across countries. If such indicators are to be used in judging the effectiveness of social policies, it is important that differences in responsiveness are fully understood.