Tax reforms vs benefit enhancement to address mental health inequalities: a microsimulation study

Abstract Background Socioeconomic inequalities in mental health are persistent across Europe. It is unclear whether progressive income tax reforms could reduce these inequalities. We compared the impact on mental health inequalities of redistributive taxation reforms alone to taxation reforms combined with benefit enhancement. Methods We used the dynamic SimPaths microsimulation model with UK Household Longitudinal Study data to simulate household incomes, employment and mental health for 2026-35, comparing four fiscally neutral policy scenarios implemented using the EUROMOD tax-benefit model: (1) current UK policy; (2) enhanced progressivity (EP): Personal Allowance raised to Minimum Income Standard, higher tax rates increased to 81%; (3) reduced progressivity (RP): Personal Allowance removed and a flat rate of 18.7% applied to income; (4): enhanced progressivity with enhanced benefits (EPEB): tax bands and rates based on Denmark's with additional revenue used to increase means-tested benefits. Prevalence of poor mental health (GHQ-12 score >3) and relative indices of inequality (RIIs) (estimating the risk in the hypothetical lowest-income household vs the highest) were estimated. 1,000 model runs accounted for parameter uncertainty. Results Income inequality (S80/S20 ratio) was 4.8 at baseline, decreasing by 0.4 in the EP scenario and 1.1 in the EPEB scenario, and increasing by 0.8 in the RP scenario. RII was 1.55 (95% CI 1.26, 1.92) at baseline, and barely changed in taxation-only scenarios: 1.57 (1.36, 1.81) for EP and 1.55 (1.38, 1.74) for RP. However, EPEB substantially reduced RII to 1.15 (1.04, 1.26), driven by reductions in poor mental health prevalence in the lowest income quintile. Conclusions Income redistribution through income tax reform alone is unlikely to substantially improve socioeconomic mental health inequalities. Tax reforms need to be combined with increased benefits for the poorest to address mental health inequalities. Key messages • Effective policy approaches to reducing health inequalities require direct support to the most disadvantaged groups rather than income redistribution through income tax alone. • Microsimulation modelling is an effective tool for evaluating how fiscal policies impact health inequalities, and can be applied across European countries using the EUROMOD tax-benefit model.