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Tax-benefits reforms and the labor market: evidence from Belgium and other EU countries

Author

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  • Kristian Orsini

Abstract

During the last decade, several EU countries have tried to tackle unemployment and low activity rates through extensive tax cuts. In an effort to encourage the taking up of work – especially amongst the less productive workers – policymakers have shown increasing interest in targeted tax and social security contribution rebates as well as in benefits conditional on being in employment. This paper surveys recent tax-benefit reforms in Germany, the Netherlands, Italy, the UK, France and Belgium, focussing in particular on the reforms carried out in the latter. The potential labor supply effect of the Belgian reforms are assessed via a discrete hours labor supply model. The results are then compared to similar evaluations of reforms implemented in the aforementioned countries. Results suggest than: (i) generalized tax cut are not always effective in stimulating labor supply; (ii) in several central continental Europe, social security contributions play a major role in determining the incentives to take up work; (iii) joint assessment of income for both purposes of taxation and benefit eligibility has unambiguous negative effects on the labor supply of secondary earners (i.e. mostly women); (iv) targeted reductions in taxes and social security contributions, as well as benefits conditioned on employment are effective means to promote employment, but (v) efficient design of these policies is of greatest importance in order to counter potential negative incentive effects on the population already in employment.

Suggested Citation

  • Kristian Orsini, 2006. "Tax-benefits reforms and the labor market: evidence from Belgium and other EU countries," Working Papers Department of Economics ces0606, KU Leuven, Faculty of Economics and Business, Department of Economics.
  • Handle: RePEc:ete:ceswps:ces0606
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    File URL: https://lirias.kuleuven.be/bitstream/123456789/119276/1/Dps0606.pdf
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    Cited by:

    1. Bargain, Olivier & Orsini, Kristian & Peichl, Andreas, 2011. "Labor Supply Elasticities in Europe and the US," IZA Discussion Papers 5820, Institute for the Study of Labor (IZA).
    2. Olivier Bargain & Andreas Peichl, 2013. "Steady-State Labor Supply Elasticities: An International Comparison," AMSE Working Papers 1322, Aix-Marseille School of Economics, Marseille, France.
    3. Marco Caliendo & Katharina Wrohlich, 2010. "Evaluating the German 'Mini-Job' reform using a natural experiment," Applied Economics, Taylor & Francis Journals, vol. 42(19), pages 2475-2489.
    4. Caliendo, Marco & Wrohlich, Katharina, 2006. "Evaluating the German "Mini-Job" Reform Using a True Natural Experiment," IZA Discussion Papers 2041, Institute for the Study of Labor (IZA).
    5. Tibor Paul Hanappi & Sandra Müllbacher, 2016. "Tax incentives and family labor supply in Austria," Review of Economics of the Household, Springer, vol. 14(4), pages 961-987, December.
    6. Olivier Bargain & Kristian Orsini & Andreas Peichl, 2012. "Comparing Labor Supply Elasticities in Europe and the US: New Results," SOEPpapers on Multidisciplinary Panel Data Research 525, DIW Berlin, The German Socio-Economic Panel (SOEP).
    7. Bargain, Olivier & Peichl, Andreas, 2013. "Steady-state labor supply elasticities: A survey," ZEW Discussion Papers 13-084, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. Kristian Orsini, 2007. "Is Belgium "Making Work Pay" ?," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 50(2), pages 193-220.

    More about this item

    Keywords

    Tax-benefit Systems – Microsimulation – Household Labour Supply – Multinomial Logit.;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • 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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