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For Better or for Worse: Tax Reform in the Netherlands

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  • H. W. Boer

    (VU University Amsterdam)

Abstract

This paper presents a structural labour supply model for the Netherlands. The model uses a large, rich data set which allows for precise estimates of labour supply elasticities for several subgroups. We use an advanced tax benefit calculator to calculate households’ budget constraints accurately. Both the large, rich data set and the advanced tax benefit calculator enable us to perform more accurate policy predictions. Simulations show that labour supply elasticities differ among subgroups. Labour supply elasticities for men in couples are low but labour supply elasticities are much higher for cohabiting/married women. Furthermore, elasticities are relatively high for individuals with a lower education and/or non-Western background. Policy simulations provide two important insights. First, an introduction of either a pure flat tax, or an income-neutral flat tax, decreases aggregate labour supply. Second, an EITC for working parents is more effective in stimulating aggregate labour supply than an EITC for all workers or an overall reduction in marginal tax rates.

Suggested Citation

  • H. W. Boer, 2016. "For Better or for Worse: Tax Reform in the Netherlands," De Economist, Springer, vol. 164(2), pages 125-157, June.
    • Handle: RePEc:kap:decono:v:164:y:2016:i:2:d:10.1007_s10645-016-9272-5
    DOI: 10.1007/s10645-016-9272-5
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    1. Laun, Lisa, 2019. "In-work benefits across Europe," Working Paper Series 2019:16, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    2. Saeed Solaymani, 2020. "Assessing the economic and social impacts of fiscal policies," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(3), pages 671-694, March.

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    More about this item

    Keywords

    Discrete choice models; Labour supply; Simulated maximum likelihood; Tax reform;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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