1 A Microsimulation Evaluation of Efficiency, Inequality and Polarization Effects of Implementing the Danish, the French and the

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, UK and Denmark (corporatist, liberal and social-democratic model respectively). The analysis is performed using microsimulation models in which labour 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 case we observe a tendency toward a slightly increased polarization. The results of the exercise highlight that, when polarization measures are seen as active instruments for policy design, rather than merely descriptive tools, the choice of the best reform appears more complex than considering income inequality alone. Moving from a positive to a normative analysis implies assessing how much a policy maker should weight this additional polarization information. Unfortunately, we still need a general framework for this type of social welfare analysis. This is an important argument for future research