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Reinventing the Dutch tax-benefit system; exploring the frontier of the equity-efficiency trade-off

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  • Ruud de Mooij

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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Bibliographic Info

Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper 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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Cited by:
  1. Bas Jacobs, 2013. "From Optimal Tax Theory to Applied Tax Policy," CESifo Working Paper Series 4151, CESifo Group Munich.
  2. Figari, Francesco, 2011. "From housewives to independent earners: can the tax system help Italian women to work?," ISER Working Paper Series 2011-15, Institute for Social and Economic Research.
  3. Stefania Marcassa & Fabrizio Colonna, 2011. "Taxation and Labor Force Participation: The Case of Italy," THEMA Working Papers 2011-22, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

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