Effects of a Shift from Income Deductions to Tax Credits - A Study on the Impact of Income Tax Reform in the Netherlands -

As the Netherlands has faced problems such as increased social security costs, it has expanded the taxation base by adopting a flatter income tax system. Through tax reforms, seeking to unify social insurance premiums and taxes, the Netherlands shifted partly from income deductions to tax credits to expand the taxation base. In the tax reform of 2001, introduction of tax credits was effective to some degree in improving the labor participation rate for women and the employment situation. After the tax reform of 2001, the significance of encouraging people to work has been emphasized. However, as the fiscal condition deteriorated after the Lehman Shock, tax credits have been reformed from the perspective of expanding the tax base, in addition, there is a trend of reducing tax credits for high-income earners. The Netherlands f tax credit system may provide clues to a solution to the problem of the regressivity that is inherent in the consumption taxation as part of the integrated reform of social security and tax systems in Japan.