COVIVAT Working Paper, 2021, 2

The economic shock following the COVID-19 pandemic and the subsequent partial lockdowns have considerable consequences for household incomes. This paper looks at two aspects of that impact in Belgium. First, it gauges the impact on monthly household incomes in April of the partial lockdown that started mid-March. Second, it estimates the impact of some of the most important compensating measures that the Belgian (federal) government took to safeguard household living standards: the extension of …

The economic shock following the COVID-19 pandemic and the subsequent partial lockdowns have considerable consequences for household incomes. This paper looks at two aspects of that impact in Belgium. First, it gauges the impact on monthly household incomes in April of the partial lockdown that started mid-March. Second, it estimates the impact of some of the most important compensating measures that the Belgian (federal) government took to safeguard household living standards: the extension of the temporary unemployment scheme and the bridging right for the self-employed. Importantly, the aim of our paper is also to discuss a method that can be used to monitor the impact of the crisis as it unfolds. We focus on first-order effects, i.e., the day after the shock and the start of the measures, without considering long-term consequences or behavioural reactions. We use the Belgian version of the microsimulation tax-benefit model EUROMOD, which runs on a representative sample of Belgian households, the EU-SILC. We recalibrate the EU-SILC to reflect the labour market impact of the COVID-19 shock by modelling the probabilities of individuals to experience a transition to temporary unemployment or the bridging right. These probabilities are based on a real-time non-probability survey conducted in April. The probabilities were calibrated against administrative recipiency statistics. We describe in detail the distribution of our (modelled) shock, and simulate its impact on the income distribution. We find that the impact of the shock on monthly disposable incomes was substantially mitigated by additional incomes in the household and by the workings of the tax benefit system. The latter worked especially well in mitigating the short term impact for wage earners in the second and third wage quintile. It is important to note that we model the COVID-19 shock based on the administrative recipiency numbers of persons falling back on temporary unemployment and the bridging right for the self-employed. This means that we model the impact on the incomes of labour market insiders with access to support measures. We therefore only provide a partial assessment of the impact of the shock and the policy measures.