This research project examines how recent challenges, such as increased economic uncertainty and ethnic diversity, have affected inequality and support for the welfare state in European countries. It also investigates the work incentives embedded in the existing tax- and benefit systems and how these affect individuals? behaviour, both in the short and in the long run. This information is a crucial input to governments? decisions on how to finance the welfare system and redistribute income while maintaining incentives to work and avoiding poverty traps. The project is divided into three strands. We first measure inequality developments using multidimensional and lifetime perspectives, and assess how different EU tax and benefit systems reduce economic vulnerability. Second, we investigate support for redistribution, asking how ethnic diversity affects people?s support for the welfare state and, using methods from experimental psychology, examining the determinants of redistributive attitudes for different groups. Third, we examine how welfare states can best be financed, including an analysis of policies targeted to boost labour supply among the low-skilled and elderly, and of how complexity of tax design affects its redistributive effects. We also produce new evidence on the long-run distortionary effects of taxes. The research will produce academically meritorious publications and highly policy relevant guidance on reforms to the redistributive side of the welfare state. The research will use comparative micro data across European countries and detailed register data from individual countries. The project unites economists, political scientists, sociologists and psychologists with extensive experience advising governments and the EC on policy design.