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Labour Tax and Child Benefits Reform in Lithuania: For Better or Worse?

Author

Listed:
  • Aurelija Anciūtė
  • Viginta Ivaškaitė-Tamošiūnė
  • Anamaria Maftei
  • Janos Varga

Abstract

In 2019, Lithuania overhauled the country’s labour taxation. Social insurance contributions paid by employers and employees were consolidated, and were accompanied by adjustments in gross wages and personal income tax rates, and increases in the minimum gross wage and the tax-free allowance. Simultaneously, the government increased the universal child benefit. Simulations based on the EUROMOD and QUEST models are used to assess the fiscal, redistributive, equity and macroeconomic impact of these reforms. Overall, the set of simulated changes marginally decreases the tax wedge, poverty and income inequality. The labour taxation reform is estimated to be costly, with a small stimulating effect on the economy.

Suggested Citation

  • Aurelija Anciūtė & Viginta Ivaškaitė-Tamošiūnė & Anamaria Maftei & Janos Varga, 2020. "Labour Tax and Child Benefits Reform in Lithuania: For Better or Worse?," European Economy - Economic Briefs 059, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecobri:059
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    References listed on IDEAS

    as
    1. Salvador Barrios & Viginta Ivaškaitė-Tamošiūnė & Anamaria Maftei & Edlira Narazani & Janos Varga, 2020. "Progressive Tax Reforms in Flat Tax Countries," Eastern European Economics, Taylor & Francis Journals, vol. 58(2), pages 83-107, March.
    2. Matthias Burgert & Werner Roeger, 2014. "Fiscal Devaluation: Efficiency and Equity," European Economy - Economic Papers 2008 - 2015 542, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Vogel, Lukas, 2012. "Structural reforms, fiscal consolidation and external rebalancing in monetary union: A model-based analysis," Economic Modelling, Elsevier, vol. 29(4), pages 1286-1298.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Lithuania; labour taxation; child benefits; social insurance contributions; minimum wage; tax wedge; disposable income; income inequality; poverty; growth; Anciūtė; Ivaškaitė-Tamošiūnė; Maftei; Varga.;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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