Differential welfare state impacts for frontier working age families
Irina Burlacu & Cathal O'Donoghue
#2012-061
Benefits and taxes vary greatly across the European Union owing to
incongruent welfare and taxation systems. This paper analyzes how
welfare states achieve insurance and equity objectives for residents who
work in other countries. The aim is to evaluate the impact of
unemployment benefits and income taxation on these frontier workers’
welfare in Luxembourg and Belgium that exhibit similar welfare state
objectives. The analysis is based on social security coordination
Regulation 883/2004 provisions on unemployment, taxation regimes and
bi-lateral tax treaties. We find mixed results. First, while countries
follow analogous welfare regimes and pursue similar welfare objectives,
their ensuing outputs differ significantly. Second, differences in
unemployment conditions and benefits favor high discrepancies in
residents’ incomes. Third, mobility creates high vertical and horizontal
inequity among Belgian and Luxembourgish residents.
JEL Classification: I38
Keywords: frontier workers, social policy, policy coordination