A Belgian flat income tax: effects on labour supply and income distribution
AbstractThe adverse distributional effects of a flat tax are well known and have been documented by empirical research in several countries, including Belgium. Advocates of the flat tax argue, correctly, that these studies do not take into account agents’ behavioural reactions and possible feed back effects. One of the important effects in this context is the potential increase in labour supply and the resulting increase in the taxable base and decrease in unemployment allowances. In this study we calculate the cost recovery based on a micro-simulation model that includes a labour supply model. We find that there is indeed a clearly positive effect on labour supply and hence also on the tax base. By introducing a revenue-neutral flat tax, labour supply increases by approximately 47,000 full-time equivalents. However, the effect is limited because, compared to a static scenario the cost recovery only allows the revenue-neutral flat tax to decrease from 38.5% to 37%. Furthermore, there is little or no impact of these employment effects on the strongly regressive nature of a flat tax reform.
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Bibliographic InfoPaper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0820.
Date of creation: Aug 2008
Date of revision:
Other versions of this item:
- André Decoster & Kris De Swerdt & Kristian Orsini, 2010. "A Belgian Flat Income Tax. Effects on Labour Supply and Income Distribution," Review of Business and Economics, Katholieke Universiteit Leuven, Faculteit Economie en Bedrijfswetenschappen, vol. 0(1), pages 23-54.
- A. Decoster & K. De Swerdt & K. Orsini, 2010. "A Belgian Flat Income Tax: Effects on Labour Supply and Income Distribution," Review of Business and Economic Literature, Intersentia, vol. 55(1), pages 23-55, March.
- DeCoster, Andre & De Swerdt, Kris & Orsini, Kristian, 2008. "A Belgian flat income tax: effects on labour supply and income distribution," EUROMOD Working Papers EM8/08, EUROMOD at the Institute for Social and Economic Research.
- C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-07 (All new papers)
- NEP-CMP-2008-10-07 (Computational Economics)
- NEP-EEC-2008-10-07 (European Economics)
- NEP-LAB-2008-10-07 (Labour Economics)
- NEP-PUB-2008-10-07 (Public Finance)
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- Randjelovic, Sasa, 2013. "Effects of income tax on personal savings: econometric evidence from Serbia," EUROMOD Working Papers EM1/13, EUROMOD at the Institute for Social and Economic Research.
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