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A bird’s eye view on 20 years of tax-benefit reforms in Belgium

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  • Decoster, André
  • Perelman, Sergio
  • Vandelannoote, Dieter
  • Vanheukelom, Toon
  • Verbist, Gerlinde

Abstract

Belgium has seen major changes in its tax-benefit system over the past twenty years. These changes have, to a large extent, co-determined the evolution of disposable incomes of Belgian households on one hand, and their incentives to work on the other. In this paper we assess equity and efficiency aspects of changes in tax-benefit policies over the full course of 1992-2012. By simulating effects of current and past tax-benefit policies using the microsimulation model MEFISTO-EUROMOD, we summarize the shifts in policy orientation over this period using two summary measures of redistribution and work incentives.Our three main findings are: 1) the changes in the tax-benefit system have to a large extent been pro-poor, and redistribution has been increased; 2) the introduction of an earned income tax credit and the lowering of personal income taxes has contributed to improve work incentives, but this effect was partially eroded by an increase in unemployment benefits since 2000; 3) the results crucially depend on whether one chooses as ‘no policy change’ counterfactual indexation with inflation or indexation with nominal wage growth.

Suggested Citation

  • Decoster, André & Perelman, Sergio & Vandelannoote, Dieter & Vanheukelom, Toon & Verbist, Gerlinde, 2015. "A bird’s eye view on 20 years of tax-benefit reforms in Belgium," EUROMOD Working Papers EM10/15, EUROMOD at the Institute for Social and Economic Research.
  • Handle: RePEc:ese:emodwp:em10-15
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    File URL: https://www.iser.essex.ac.uk/research/publications/working-papers/euromod/em10-15.pdf
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    References listed on IDEAS

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    1. Olivier Bargain & Tim Callan, 2010. "Analysing the effects of tax-benefit reforms on income distribution: a decomposition approach," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 8(1), pages 1-21, March.
    2. François Bourguignon & Amedeo Spadaro, 2006. "Microsimulation as a tool for evaluating redistribution policies," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 4(1), pages 77-106, April.
    3. Browning, Edgar K, 1976. "The Marginal Cost of Public Funds," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 283-298, April.
    4. Callan, Tim & Keane, Claire & Savage, Michael & Walsh, John R. & Timoney, Kevin, 2012. "Work Incentives: New Evidence for Ireland," Papers BP2013/3, Economic and Social Research Institute (ESRI).
    5. Stuart Adam & James Browne, 2010. "Redistribution, work incentives and thirty years of UK tax and benefit reform," IFS Working Papers W10/24, Institute for Fiscal Studies.
    6. Callan, Tim ed. & Barrett, Alan & Goggin, Jean & Gorecki, Paul K. & Keane, Claire & Kearney, Ide & Matthews, Alan & Walsh, John R., 2009. "Budget Perspectives 2010," Research Series, Economic and Social Research Institute (ESRI), number RS12.
    7. Bev Dahlby, 2008. "The Marginal Cost of Public Funds: Theory and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262042509.
    8. David Carey, 2003. "Tax Reform in Belgium," OECD Economics Department Working Papers 354, OECD Publishing.
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    12. Bev Dahlby, 2011. "The marginal cost of public funds and the flypaper effect," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(3), pages 304-321, June.
    13. Richard Blundell & Andrew Shephard, 2012. "Employment, Hours of Work and the Optimal Taxation of Low-Income Families," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 481-510.
    14. Tom Clark & Andrew Leicester, 2004. "Inequality and two decades of British tax and benefit reform," Fiscal Studies, Institute for Fiscal Studies, vol. 25(2), pages 129-158, June.
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    16. Dahlby, Bev, 1998. "Progressive taxation and the social marginal cost of public funds," Journal of Public Economics, Elsevier, vol. 67(1), pages 105-122, January.
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    Cited by:

    1. Diego Collado & Bea Cantillon & Karel Van den Bosch & Tim Goedemé & Dieter Vandelannoote, 2016. "The end of cheap talk about poverty reduction: the cost of closing the poverty gap while maintaining work incentives," ImPRovE Working Papers 16/08, Herman Deleeck Centre for Social Policy, University of Antwerp.

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