Integrated Labour Markets, Fragmented Welfare Systems: Cross-Border Work and the Measurement of Disposable Income

Cross-border labour markets integrate European regions economically, but welfare analysis remains constrained by national institutional systems. This paper develops a framework for measuring disposable income, redistribution, and inequality in functionally integrated but institutionally fragmented cross-border regions. We build on the European tax-benefit model EUROMOD to incorporate cross-border taxation, social insurance coordination, and family benefit allocation, and apply it to hypothetical household scenarios for workers residing in France and Belgium and employed in Luxembourg, the core of the Greater Region. We find that the disposable income consequences of cross-border employment are substantial and vary by household type and residence country. The cross-border premium is compressed at high earnings by France’s exemption-with-progression mechanism, while Belgium’s full exemption lets it persist and grow across the distribution. Modelling cross-border workers under residence-country rules alone likely overstates income equality, with the bias concentrated among households with children and at the lower end of the income distribution. These findings illustrate how territorial integration and welfare fragmentation coexist within functional cross-border regions. Combining country-specific EUROMOD models through a harmonised counterfactual approach, the paper offers a replicable method for measuring disposable income in cross-border contexts, and shows that inequality measurement remains tied to national welfare institutions even where labour markets operate at a regional scale