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Reinventing the Dutch tax-benefit system

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Author Info
Ruud de Mooij ()

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Abstract

European governments aim to raise labour supply, cut unemployment and, at the same time, maintain social cohesion. Yet, economists have stressed the trade-off between these objectives. This paper reviews the key policy insights from optimal tax theory to identify options for reform in the tax-benefit system that can potentially improve the equity-efficiency trade-off. Using a comprehensive applied general equilibrium model, we then explore whether reforms along these lines in the actual Dutch tax-benefit system will raise employment without sacrificing equality. The analysis reveals that selective tax relief for elastic secondary earners and low-skilled workers have this potential. A flat income tax structure - possibly combined with a negative income tax - worsens the equity-efficiency trade-off.

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Papers with number 88.

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Date of creation: Sep 2007
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Handle: RePEc:cpb:discus:88

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Related research
Keywords: Tax-benefit system; Labour supply; Unemployment; the Netherlands; Applied general equilibrium;

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Find related papers by JEL classification:
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

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  12. A. Lans Bovenberg & Johan J. Graafland & Ruud A. de Mooij, 1998. "Tax Reform and the Dutch Labor Market: An Applied General Equilibrium Approach," NBER Working Papers 6693, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    Other versions:
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