insurance benefits have been widely studied in the macro and micro literature due to their role in stabilizing household income, consumption and aggregate output (Auerbach and Feenberg 2000, Dolls et al 2012, Dolls et al 2022).

In the aftermath of the financial crisis of 2007–08, several studies making use of microsimulation techniques focused on the role of automatic stabilizers in cushioning income shocks. Tasseva and Paulus (2020) decompose changes in the income distribution of EU countries between 2007 and 2014 into the effect of gross market incomes and population changes, automatic stabilizers, and discretionary tax-benefit policy reforms. Their results show that both, automatic stabilizers and discretionary policies, most often contributed to offset the inequality-increasing effect of the income shocks. Doorley et al. (2021) use similar techniques to assess the role of tax-benefit policies in income inequality in Portugal, Ireland, Italy, Greece and Spain. Their results show that benefits acting as automatic stabilizers played an important role in reducing inequality in all countries between 2007 and 2013.

Other studies have tested the stabilization properties of tax-benefit policies by applying hypothetical earnings or employment shocks. In general, these studies show that benefits stabilize incomes at the bottom of the distribution, whereas taxes act as automatic stabilizers at the top. In general, the effect of taxes has been found to be larger and households at the bottom distribution have been shown to be less protected by policies against income shocks (Dolls, Fuest and Peichl 2011).

In the context of the COVID-19 pandemic, a great deal of attention has also been given to the role of automatic stabilizers and emergency policies in mitigating the impact of the crisis. In highincome countries, the important role played by taxes and benefits acting as automatic stabilizers was confirmed during the pandemic. Additionally, monetary compensation schemes contributed to a large extent to protect household incomes (Brewer and Tasseva 2021, Figari and Fiorio 2020, Bruckmeier et al. 2021, Kyyrä et al. 2021, Christl et al. 2022b). In the context of developing countries, the picture is more mixed. In some countries, no emergency policies were introduced to mitigate the impact of the pandemic (e.g., Mexico as shown by Huesca et al. 2021), whereas other governments implemented generous social protection programs which reduced inequalities (e.g., Brazil as shown by Lustig et al. 2021). A common trait across among many low and middleincome countries is the little effect of automatic stabilizers. In particular, due to the design of social assistance programs as proxy means-tested benefits, no automatic stabilization is provided at the bottom of the distribution in these countries. In this context, automatic stabilizers act only at the top of the distribution due to the effect of social insurance contributions and income tax (Lastunen et al. 2021, Rodriguez et al. 2022).

# **3 Data and methodology**

The analysis makes us of EUROMOD I4.0, the most recent version of the European tax-benefit microsimulation model, to evaluate the effectiveness of the current system in providing support as well as to simulate counterfactual scenarios excluding COVID-19-specific policies.

## **3.1 EUROMOD and the underlying micro-data**

EUROMOD combines detailed country-specific policy rules with representative household survey data to simulate direct taxes, social insurance contributions and cash benefits for the household 5