Labour Taxation and In-Work Poverty in Europe: Evidence from the EU Countries

Thomas M. Menino Convention & Exhibition Center 

The in-work at-risk-of-poverty rate has become an increasingly relevant issue in Europe, raising concerns about the effectiveness of labour taxation and labour market institutions in ensuring adequate living standards for employed individuals. This paper examines the relationship between labour taxation and in-work poverty in Europe using a macro-level panel dataset covering 25 EU countries over the period 2013–2024. In-work poverty is measured for single individuals without children earning 50%, 67%, and 80% of the average earnings, standard thresholds used to identify low-wage workers across the wage distribution and consistent with Eurostat's framework. To account for unobserved common factors and cross-sectional dependence, the analysis employs the Common Correlated Effects pooled (CCE pooled) estimator (Pesaran, 2006). The empirical framework controls for key labour market and economic characteristics, including part-time employment, temporary and involuntary employment, and labour productivity. The study highlights the importance of considering labour taxation within a macroeconomic and institutional context when designing policies reduce in-work poverty in Europe.

Common Correlated Effects pooled

In-work at-risk-of-poverty rate

Labour market 

International Statistical Institute