Our analysis provides a number of interesting findings. First, we show that there is a great deal of heterogeneity between countries in terms of earnings losses and the extent these are mitigated by tax-benefit policies. Overall, the cushioning role of tax-benefit systems is important as changes in mean disposable income are significantly smaller than those in market income in all countries. Second, in most countries, the largest contribution to cushioning the economic shock of the pandemic comes from monetary compensation schemes. In particular, our results show that the ‘compensation’ part accounts for the largest cushioning effect of monetary compensation schemes in most countries. Third, automatic stabilizers also play an important role in cushioning household incomes, contributing up to 6% to the change in mean disposable income in Ireland. In most countries, the cushioning effect of automatic stabilizers increases with income, depicting the role of taxes and social insurance contributions in providing income stabilization. In terms of benefits, unemployment insurance contributes the most to automatic stabilization, whereas the role of social assistance benefits is limited in most countries. Fourth, COVID-19-specific changes in taxes and benefits play only a minor role in most countries, except in Ireland, where they account for a 4% increase in household income. Finally, a similar pattern is observed for those severely affected by the market income shocks, confirming the important role played by monetary compensating schemes across different population subgroups.

The remainder of the paper is structured as follows. We first present already available results on COVID-19-related income changes and the role of the tax-benefit system and related, a literature review on the role of automatic stabilizers versus emergency support. Section 3 outlines the methodology and data used for the analysis. Section 4 presents the empirical results. Section 5 summarizes and concludes the analysis.

# **2 Literature**

This section briefly reviews the most recent studies assessing the role of tax-benefit policies in protecting household income during the COVID-19 pandemic. Additionally, we briefly discuss the literature focusing on automatic stabilizers beyond the context of the pandemic.

## **2.1 COVID-19-related studies**

Around the world, recent empirical applications have used EUROMOD for timely monitoring of the distributional impact of the COVID-19 pandemic and the cushioning effect of tax-benefit policies before micro data on the situation became available. Examples of international studies are Avellaneda et al. (2021) for Andean countries; Barnes et al. (2021) for South Africa; Jara et al. (2021) for Ecuador; Lastunen et al. (2021) for five countries in Africa and Wright et al. (2021) for Indonesia.

They all apply Atkinson’s (2009) “stress-test” methodology where micro data is shocked – in these cases based on external information on the adverse effects of the COVID-19 pandemic – to assess the resilience of the welfare state and to identify vulnerabilities of the system (Popova and Navicke, 2019).

While the analysis in these emerging and low-income economies is often based on the role of emergency measures, the European context allows for a more nuanced analysis of the role of monetary compensation schemes as well as automatic stabilizers.

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