Although there are important links between the pension system and the tax system, both systems are often studied in isolation. In this paper, we study the interaction between the pension and tax system from a social inequality perspective, in the EU-27 countries and the UK. We study whether both systems reinforce each other or whether they operate in opposite directions. We provide a framework in which countries are classified according to the characteristics of their tax-benefit system, departing from the idea that the underlying principle of the welfare state will affect key decisions regarding pension systems and their taxation. In the analysis, we use the European microsimulation tax-benefit model EUROMOD to calculate the tax burden for pensioners and workers. We study how the tax burden differs across the distribution of pre-tax income and use a decomposition to show how taxes on each component influence progressivity of overall taxes and social contributions. We investigate whether any cross-country (dis)similarities can be discerned related to the welfare state types presented in the literature. Our results indicate that almost all countries use the tax system as a social policy tool. The distributive effects, however, differ across countries. There is variation with regards to the extent to which pensioners are taxed into poverty and with regards to the effect on tax progressivity.
