Figures and tables in Alternatives for Financing Social Security in Luxembourg by Resident and Cross-Border Households

Abstract

Given the rapidly evolving structural socio-demographic determinants in Luxembourg (ageing, migrations, cross-border households) and social needs induced, the concern about the funding of the Luxembourg social security system is high on the agenda. This concern could become even more pressing over time, given Luxembourg’s specificity in several respects. According to the 2024 Ageing Report of the EPC’s Ageing Working Group, Luxembourg might face an increase of age-related expenditure from 17.2% of GDP in 2022 to 27.9% in 2070, mostly due to pensions (+ 8.3% of GDP over the period). This is the biggest increase expected in EU-countries, a first particularity for Luxembourg. A second specificity is the importance of cross-border commuters in the Luxembourg economy. These represent 43% of total employment in 2022. Given such a context, the country’s social players are looking for avenues of reflection for future concrete proposals. This paper precisely aims to contribute to such a debate. It examines day-after impact of hypothetical parametric changes in social contributions and personal income taxes (the “alternatives”) on the distribution of household disposable income and total public financial receipts from these sources for Luxembourg. Moreover and given the importance of cross-border commuters for the country, we need a microsimulation modelling −EUROMOD-based− covering both residents and cross-border commuters’ households, the latter population involving an essential innovative extension to previous assessments. We emphasize the structural discrepancies between residents and cross-border households in terms of socio-economic status as well as regarding gross labor and taxable income. Consequently, we show that total receipts from residents are greater than those from cross-border households, even when controlling for population size. Next, we examine 42 alternatives based on the concerns of a key Luxembourg social partner in the context of an ongoing public debate. This examination takes into account the values achieved for a triplet of standard indicators chosen for their simplicity and acceptability to a broad public, and this within the framework of an independent external expertise: total revenues (cross-border households included), the inequality Gini coefficient and the poverty rate (the latter two for the resident population only). We then complete our detailed overview with an evaluation of each alternative according to the selected dimensions altogether. Finally, we evoke a basic “Global Performance Index” which may enlighten conclusions derived from a one or two-dimensional analysis. Although the analysis is specific to Luxembourg, the policy alternatives and methodology considered here may also be relevant for other countries with comparable socio-economic fundamentals, particularly in the context of the EU-wide concern regarding the fiscal implications of population ageing.

This article contains 8 figures and 10 tables.

Figures

**Figure 1.** Share of employees, based on their average earnings compared to the MSW, in % of employees with positive (>0) labor earnings [*] (MSW = 1998.59 EUR / month in 2017).

**Figure 2.** Share of fiscal households across the fiscal brackets, based on their yearly tax base, if >0 and class-1 (single without dependents) or class-2 households (couples) (as resulting from EUROMOD /HFCS-R and EUROMOD /HFCS-XB).

**Figure 3.** Total receipts for Luxembourg (from residents and all XBs), social contributions and income taxes for all alternative systems of socio-fiscal policies (all outcomes “++” hence including “macro adjustment”, see Table 1) – Ranked based on total receipts

**Figure 4.** Proportion of receipts for Luxembourg from residents (in % of receipts including “macro adjustments”, see Table 1)

**Figure 5.** The Gini coefficient for residents and its decomposition for all alternative systems of socio-fiscal policies – in % of their STD value, ranked in decreasing values

**Figure 6.** The poverty rate (absolute values) and the poverty line (in % of its STD value) for residents and all alternative systems of socio-fiscal policies – Ranked in decreasing values of poverty rates

**Figure 7.** Gini coefficient for residents versus Total receipts, across a selection of alternative systems of socio-fiscal policies

**Figure 8.** Poverty rate for residents versus Gini coefficient for residents, across a selection of alternative systems of socio-fiscal policies

Tables

Table 1. An overall view of the benchmark “STD” (income year 2017) for resident and XB households

Data and EUROMOD platforms			SILC *	HFCS-R	HFCS-XB (Active households & LU-incomes only)
Population covered by the survey, in persons			574,184	535,897	418,997
Taxable Income, before Tax allowances, in millions € / year (from tinty_s in HFCS-R, or tinty_lu_s for Active XB households)			20,808	20,041	7,947
… out of additional amount from XBs not covered by the survey (for subsequent macro adjustment, see Section 2.4)					1,109
Public Revenue (in millions € / year)
	Social contributions		3,914	3,714	2,030
	whose	Employee	1,820	1,693	945
		Self-employed	178	221	27
		Others (Long term care from Social assistance)	3	3	0
		Employers	1,710	1,667	1,059
		Credited (Replacement income, Social assistance, Pensions)	202	130	0
	… out of additional amount from XBs not covered by the survey (for macro adjustment)				62
	Personal Income Tax		3,289	3,439	824
		Implicit Tax Rate on Tax Base (tinty_s – tinta_s, or LU versions if XBs), before Tax Credits		20.9%	14.4%
		Global Tax Rate (after Tax Allowances & Credits) = Income Tax / Taxable Income, on average		17.2%	10.4%
	… out of additional amount from XBs not covered by the survey (for macro adjustment)				115
	Þ Total Public Revenue (before macro adjustment)		7,203	7,153	2,855
Inequalities					If All Incomes
	Gini
		Relative = Abs / (2*Avg)	0.2524	0.2993	0.1940
		Absolute (in € / month)	1,701	2,103	1,088
		Average (in € / month)	3,371	3,513	2,804
	Poverty
		Line (in € / month)	1,790	1,770	1,564
		Rate	11%	13%	2%
		by Type of Residence Household:
		Single (<65)	14%	16%	1%
		Single (65+)	8%	9%	2%
		Single with dependent(s)	31%	18%	0%
		Couple - 0 dep	6%	5%	2%
		Couple - 1-2 dep	11%	18%	2%
		Couple - 3+ dep	14%	21%	2%
"Well-being", as equivalized income (all in € / month), on average					If All Incomes
	All		3,371	3,513	2,804
	1st Decile		1,574	1,472	1,635
	by Type of Residence Household:
		Single (<65)	3,308	3,249	2,828
		Single (65+)	3,215	3,440	2,878
		Single with dependent(s)	2,473	2,661	2,530
		Couple - 0 dep	3,922	4,150	3,194
		Couple - 1-2 dep	3,117	3,292	2,768
		Couple - 3+ dep	2,673	2,826	2,353

Source: Liégeois (2025a) Table 2

A comparison with official statistics can be found in the EUROMOD country report for Luxembourg (https://euromod-web.jrc.ec.europa.eu/resources/country-reports - Archives - I3.0+ - Annex 2: Validation tables)

Table 2. Alternative systems of socio-fiscal policies - 1^st part STD, dependency and health care

#	Underlying Policy	Ref.	Contents (all in relation with Social Contributions)*
1	BASELINE	STD	EUROMOD simulation of System presently in force “LU_2017_STD”
2	Dependency (Long Term Care) (target cf. health/in-kind, out of pensioners) (7% of social contributions in 2018)†	D1	Deductibility (for the computation of social contribution base) *from 0.25MSW in STD down to 0%** ‡
3		D2	Deductibility (for the computation of social contribution base) *from 0.25MSW up to 0.5MSW*
4		D3	Contribution rate increase from 1.4% in STD up to 1.6% of labor income (to roughly balance the higher deductibility above in [D2])
5		D4	Contribution rate increase from 1.4% up to 2.4%
6		D5	[D2] + [D3]: Increase deductibility and balance it through a higher contribution rate
7	Health care / in-kind (Social Contributions, including “credited”, for employ-ees/-ers, self-employed, replacement income, pensioners, social assistance) (29% of social contributions in 2018) †	H1	Max threshold for the social contribution base from 5 MSW in STD to 7 MSW (see Section 2.2 and ‡)
8		H2	No threshold for the social contribution base (NB: upper bound set to 1000 MSW, practically)
9		H3	Reduced fiscal deductibility of social contributions: from 100% (not taxable in STD) down to 50%
10		H4	Social contribution rates from 2.8% in STD to 3.8% (hence +2% if employ-ees/-ers altogether)
11		H5	Progressivity of social contrib. rates: *2.8% (resp. 3.8%) for that part of labor income < 2 (resp. >=2) MSW*
12		H6	Progressivity of social contrib. rates: **1.8% (resp. 3.8%*) for that part of labor income < 2 (resp. >=2) MSW
13		H7	[H5] + [H1]: Progressivity (2.8%/*3.8%) and max threshold to 7 MSW*
14		H8	[H6] + [H1]: Progressivity (*1.8%/3.8%) and max threshold to 7 MSW*
15		H9	[H5] + [H2]: Progressiv. (2.8%/*3.8%) and no threshold*
16		HA	[H5] + [H2] + [H3]: Progressivity (2.8%/*3.8%), no threshold* and fiscal deductibility to 50% only

For details about “STD” and reference parameters or policies, refer to Islam et al. (2020).

Source: EUROMOD Country Report for LU, Y12 (2018-2021), Table 4.8 (page 73), Employee / Self-employed, Employer and Credited contributions, from External sources and for Residents only.

Minimum Social Wage (MSW, Section 2.2): 1.998,59 EUR/month as on 1 January 2017. In STD, 25% of this amount is deducted from the social contribution base (gross labor income) before deriving social contributions (some % of the base).

Table 3. Alternative systems of socio-fiscal policies - 2^nd part - pensions

#	Underlying Policy	Ref.	Contents (all in relation with Social Contributions)*
17	Pensions (Social Contributions, including “credited”, for employ-ees/ers, self-employed, replacement income) (60% of social contributions in 2018) Source: cf. ^[***] in Table 2	P1	Max threshold for the social contribution base from 5 MSW in STD to 6 MSW†
18		P2	Max threshold from 5 MSW to 7 MSW
19		P3	No threshold for the social contribution base (NB: upper bound set to 1000 MSW, practically)
20		P4	Social contribution rate from 8% in STD to 9% both for employees and employers (hence +2% altogether)
21		P5	[P4] + [P2]: Rate from 8% to 9% and max threshold to 7 MSW
22		P6	[P4] + [P3]: Rate from 8% to 9% and no threshold
23		P7	Progressivity of social contribution rates: 8% (resp. 9%) for that part of labor income < 2 (resp. >=2) * MSW
24		P8	Progressivity: 7% (resp. 9%) for that part of labor income < 2 (resp. >=2) MSW
25		P9	[P8] + [P2]: Progressivity (7% and 9%) and max threshold for the social contribution base to 7 MSW
26		PA	Progressivity: 9% (resp. 10%) for that part of labor income < 2 (resp. >=2) * MSW
27		PB	[PA] + [P3]: Progressivity : 9% (resp. 10%) and no threshold
28		PC	Social contribution rate from 8% to 12% for employees/-ers
29		PD	CSV: cf. [P1] +*Contribution Solidarité Vieillesse* / CSV: 5% flat rate with the Minimum Pension (“MP” = 1771.75 €/month in 2017) deducted from the contribution base (pension income) at individual level ; no deductibility from income tax base & No Threshold for CSV
30		PE	CSV: cf. [PD], but 25% of MP deducted from the contribution base (pension income) only
31		PF	CSV: [PD] + [P6] (social contribution rate to 9% and no max threshold)
32		PG	CSV: cf. [PD], hence [P1], but Proportional Tax for CSV (flat, but increasing with class of pension income): 0% if social contrib. base <= MP, 1.4% if base in ]MP, 2MP], 2.8% if base in ]2MP, 3MP] and 4.2% if base > 3MP
33		PH	CSV: cf. [PD], hence [P1], but Progressive Tax for CSV (cf. Income tax), same rates and limits as in PG

For details about parameters or policies in our benchmark “STD”, refer to Islam et al. (2020).

Minimum Social Wage (MSW, Section 2.2): 1.998,59 EUR/month as on 1 January 2017.

Table 4. Alternative systems of socio-fiscal policies - 3^rd part - income taxes

#	Underlying Policy	Ref.	Contents (all in relation with Income Taxes)*
34	Personal Income Taxes (Tax schedule) (equivalent to 86% of social contributions in 2018) Source: cf. ^[***] in Table 2	I1	Brackets unchanged but higher Rates for higher Brackets: 45.897 € and more (40%, rather than 39% in STD), then 42% (40% in STD), 44% (41% in STD) and 46% for higher brackets (42% in STD)
35		I2	More higher brackets and higher Rates: 39% up to 100.000 € (100 K), 40% up to 150 K, 41% up to 200 K -up to here as in STD-, then 42% up to 300 K, 44% up to 400 K, 46% up to 500 K, 48% up to 600 K, 50% up to 700 K, 52% up to 800 K, 54% up to 1000 K and 56% over 1000 K
36		I3	Idem [I1] but “class-1a” (Section 2.2) dropped and merged to class-2
37		I4	Lower Rates for lower (unchanged) brackets: 0%, 2%, 4%, 6%, 8%, 10%, 12%, 14% and 17% respectively for the 9 first tax brackets (0%, 8%, 9%, 10%, 11%, 12%, 14%, 16% and 18% in STD), then unchanged compared to STD
38		I5	Enlargement of lower Brackets (Rates unchanged): 0 € ; 16,000 € ; 17,000 € ; 18,000 € ; 19,000 € and [20,000 € – 20,625 €] for the 6^th bracket (0 € ; 11,265 € ; 13,137 € ; 15,009 € ; 16,881 € and [18,753 € - 29,625 €] in STD)
39		I6	All combined [I1] + [I4] + [I5]: higher Rates for higher Brackets and enlargement of lower Brackets (with lower Rates)

For details about our benchmark “STD” and reference parameters or policies, refer to Islam et al. (2020).

Table 5. Alternative systems of socio-fiscal policies - Final part combining instruments for a global target

#	Combined Policy	Ref.	Contents	Remarks
40	Combination of policies to target an additional funding of 2.77 billion € / year (EUROMOD-base)	C1	[P6] + ([H2] + [H4]) +([D1] + [D4]) + I1	“C” (as first letter) for “Combination” of policies, here based on all maximally funding tracks through Pensions (without CSV), Health, Dependency and Income tax Reminder: [P6] = social contribution rate from 8% to 9% & no threshold / [PB] = progressivity 9% and 10% & no threshold / [PC] = 8% to 12% with threshold (5 MSW)
41		C2	[PB] + ([H2] + [H4]) +([D1] + [D4]) + I1
42		C3	[PC] + ([H2] + [H4]) +([D1] + [D4]) + I1
43		C4	[C1] + [PG]	Social contribution rate for pensions from 8% to 9%, no threshold and CSV with proportional rate (hence flat, but increasing with the class of income)

Table 6. Selected basic indicators and normalized values for STD

Basic Indicator considered ß	C1-C4 ß	Min		Max		STD
Basic Indicator considered ß	C1-C4 ß	I_MIN *	Alternative	I_MAX [**]	Alternative	I_STD	Normalized index i_STD (if Cx included) *
Gini coefficient(residents)	Included	0.2922	C4	0.3004	PC	0.2993	0.138 *
Gini coefficient(residents)	Excluded	0.2939	I3	0.3004	PC	0.2993	0.138 *
Poverty Rate(residents)	Included	12.6%	C4	14.7%	I3	13.2%	0.697
Poverty Rate(residents)	Excluded	12.6%	PE	14.7%	I3	13.2%	0.697
Total Receipts for Luxembourg(in millions €/year)	Included	9,849	I6	12,432	C3	10,185	0.130
Total Receipts for Luxembourg(in millions €/year)	Excluded	9,849	I6	11,558	PC	10,185	0.130

See Section 4.2 - The Gini normalized value g_STD directly computed from this table = (0.3004 – 0.2993) / (0.3004 - 0.2922) = 0.134 is slightly deviating from the “effective” value 0.138 mentioned in the table, due to rounding effects

Table 7. A few alternatives emphasized throughout this study

Criteria and Main values	If considering the combined alternatives C1-C4 (see also Table B1)	If excluding C1-C4 (see also Table B2)
Total Receipts (social contributions + personal income taxes ; residents + XBs) [Min: 8,849 - STD : 10,185 - Max : 12,432], in million € / year	C3: best C4: 2^nd best I6: the worst alternative (but that can also be shown as the best for well-being)	PC: best PF: 2^nd best
Poverty rate among Residents (proportion of persons under 60% of the median equivalent income) [Min: 12.6% - STD: 13.2% - Max: 14.7%]	C4: best PE: 2^nd best	PE: best HA: 2^nd best
Gini inequality coefficient among residents (mean absolute equivalent income gap divided by twice the average equivalent income) [Min: 0.2922 - STD : 0.2993 - Max : 0.3004]	C4: best C2: 2^nd best	I3: best I6: 2^nd best
General Performance Index (GPI)	C4: best balanced (if weights = 0.3/Gini, 0.3/poverty, 0.4/receipts) C2: 2^nd best balanced	PF: best balanced (if weights = 0.3/Gini, 0.3/poverty, 0.4/receipts) HA: 2^nd best balanced

Table A1. Correlations between an ad hoc selection of basic outcome indicators

Correlations	Total Receipts	Receipts from Residents	Receipts from XBs	GINI Residents	POVERTY Residents	POVERTY - Single Resident Households with Dependents	WELL-BEING Residents	GINI XBs	POVERTY XBs	WELL-BEING XBs
Total Receipts	1.00
Receipts from Residents	1.00	1.00
Receipts from XBs	0.99	0.97	1.00
GINI Residents	-0.40	-0.45	-0.26	1.00
POVERTY Residents	-0.11	-0.14	-0.05	-0.01	1.00
POVERTY - Single Resident Households with Dependents	-0.21	-0.23	-0.16	-0.08	0.82	1.00
WELL-BEING Residents	-0.97	-0.98	-0.93	0.49	0.23	0.33	1.00
GINI XBs	-0.42	-0.44	-0.35	0.68	0.19	-0.07	0.44	1.00
POVERTY XBs	-0.81	-0.79	-0.82	0.10	0.41	0.47	0.81	0.38	1.00
WELL-BEING XBs	-0.98	-0.97	-0.98	0.28	0.16	0.30	0.96	0.35	0.87	1.00

Note to the reader: the correlations refer to the outcomes for all (43) alternatives ; indicators referring to XBs are shown in blue fonts (these refer to the populations covered by the HFCS-XB survey, out of the (total) Receipts from XBs which are macro-adjusted for “non-active” XB households).

Table B1. Global performance index, given weights for Gini coefficient, poverty rate and total receipts (in million € / year) All alternatives considered (including the combined systems C1-C4)

p.m. RECEIPTS (in millions €/year) (Min: 9,849 - Max : 12,432)
GINI (Min: 0.2922 - Max : 0.3004) a ß	POVERTY / b Þ (Min: 12.6% - Max: 14.7%)		0			0.3			0.6			1
GINI (Min: 0.2922 - Max : 0.3004) a ß	Best Systems, "Cx" INCLUDED		*1st Best*	2nd Best	*3rd Best*	*1st Best*	2nd Best	*3rd Best*	*1st Best*	2nd Best	*3rd Best*	*1st Best*	2nd Best	*3rd Best*
0	INDIC	STD	C3	C4	C2	C3	C4	C2	C4	C2	C1	C4	PE	HA
	REC	10,185	12,432	11,670	11,655	12,432	11,670	11,655	11,670	11,655	11,557	11,670	10,361	10,488
	GINI_R	0.2993	0.2971	0.2922	0.2927	0.2971	0.2922	0.2927	0.2922	0.2927	0.2935	0.2922	0.2985	0.2964
	POV_R	13.2%	13.6%	12.6%	13.0%	13.6%	12.6%	13.0%	12.6%	13.0%	13.0%	12.6%	12.6%	12.7%
0.3	INDIC	STD	C3	C4	C2	C4	C2	C1	C4	C2	C1
	REC	10,185	12,432	11,670	11,655	11,670	11,655	11,557	11,670	11,655	11,557
	GINI_R	0.2993	0.2971	0.2922	0.2927	0.2922	0.2927	0.2935	0.2922	0.2927	0.2935
	POV_R	13.2%	13.6%	12.6%	13.0%	12.6%	13.0%	13.0%	12.6%	13.0%	13.0%
0.6	INDIC	STD	C4	C2	C1	C4	C2	C1
	REC	10,185	11,670	11,655	11,557	11,670	11,655	11,557
	GINI_R	0.2993	0.2922	0.2927	0.2935	0.2922	0.2927	0.2935
	POV_R	13.2%	12.6%	13.0%	13.0%	12.6%	13.0%	13.0%
1	INDIC	STD	C4	C2	C1
	REC	10,185	11,670	11,655	11,557
	GINI_R	0.2993	0.2922	0.2927	0.2935
	POV_R	13.2%	12.6%	13.0%	13.0%

Table B2. Global Performance Index, given weights for Gini coefficient, poverty rate and total Receipts (in million € / year) - All alternatives (excluding the combined systems C1-C4)

p.m. RECEIPTS (in millions €/year) (Min: 9,849 - Max : 11,558)
GINI (Min: 0.2939 - Max : 0.3004) a ß	POVERTY / b (Min: 12.6% - Max: 14.7%)		0			0.3			0.6			1
GINI (Min: 0.2939 - Max : 0.3004) a ß	Best Systems, “CX” EXCLUDED		*1st Best*	2nd Best	*3rd Best*	*1st Best*	2nd Best	*3rd Best*	*1st Best*	2nd Best	*3rd Best*	*1st Best*	2nd Best	*3rd Best*
0	INDIC	STD	PC	PF	PB	PC	PF	PB	PF	HA	PE	PE	HA	PF
	REC	10,185	11,558	10,793	10,782	11,558	10,793	10,782	10,793	10,488	10,361	10,361	10,488	10,793
	GINI_R	0.2993	0.3004	0.2957	0.2960	0.3004	0.2957	0.2960	0.2957	0.2964	0.2985	0.2985	0.2964	0.2957
	POV_R	13.2%	13.7%	12.8%	13.2%	13.7%	12.8%	13.2%	12.8%	12.7%	12.6%	12.6%	12.7%	12.8%
0.3	INDIC	STD	PC	PF	PB	PF	HA	PB	HA	PF	PE
	REC	10,185	11,558	10,793	10,782	10,793	10,488	10,782	10,488	10,793	10,361
	GINI_R	0.2993	0.3004	0.2957	0.2960	0.2957	0.2964	0.2960	0.2964	0.2957	0.2985
	POV_R	13.2%	13.7%	12.8%	13.2%	12.8%	12.7%	13.2%	12.7%	12.8%	12.6%
0.6	INDIC	STD	I3	PF	PB	PF	HA	PB
	REC	10,185	10,221	10,793	10,782	10,793	10,488	10,782
	GINI_R	0.2993	0.2939	0.2957	0.2960	0.2957	0.2964	0.2960
	POV_R	13.2%	14.7%	12.8%	13.2%	12.8%	12.7%	13.2%
1	INDIC	STD	I3	I6	PF
	REC	10,185	10,221	9,849	10,793
	GINI_R	0.2993	0.2939	0.2945	0.2957
	POV_R	13.2%	14.7%	14.0%	12.8%