A Microsimulation Evaluation of Efficiency, Inequality andPolarization Effects of Implementing the Danish, the French and the UK Redistribution System in Spain

Abstract

This paper provides evidence about the effects of possible reforms of the Spanish direct redistribution system. We perform an ex-ante evaluation of the impact upon efficiency, income distribution, and polarization of the replacement of the Spanish system with the ones enforced in France, the U.K., and Denmark (corporatist, liberal, and social-democratic model respectively). The analysis is performed using microsimulation models in which labor supply is explicitly taken into account. The results show that the simulated scenarios have little impact on the efficiency of the economy. We find that each of the new systems would reduce income inequality. However, when we take into consideration income polarization, the effects of the reforms are ambiguous: in some cases we observe a tendency toward an increased polarization.