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Making the switch from joint to individual taxation in Luxembourg. Cost, behavioural response and welfare effects

Author

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  • ISLAM Nizamul
  • DOORLEY Karina
  • FLOOD Lennart

Abstract

We study the effect of a move from joint to individual taxation system using 2,276 couple household living in Luxembourg. We estimate simultaneously labour supply and social assistance (RMG) participation, exploiting a discrete choice model. We focus on the distributional, work (extensive and intensive margin) incentive, and the social welfare effect of introducing a mandatory individual taxation system in Luxembourg. The work incentive of married women increases by 2.27% in intensive margin and 2.58% in extensive margin after the reform. The incentive of married men is almost zero. Equivalised disposable income, after the behavioural adjustment, decreases on average 2.1 per cent. After adjustments to direct and indirect taxes, the net revenue-neutral result is a budget surplus for the central government of around €10 million.

Suggested Citation

  • ISLAM Nizamul & DOORLEY Karina & FLOOD Lennart, 2020. "Making the switch from joint to individual taxation in Luxembourg. Cost, behavioural response and welfare effects," LISER Working Paper Series 2020-05, Luxembourg Institute of Socio-Economic Research (LISER).
    • Handle: RePEc:irs:cepswp:2020-05
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    File URL: https://liser.elsevierpure.com/fr/publications/making-the-switch-from-joint-to-individual-taxation-in-luxembourg
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    More about this item

    Keywords

    Joint taxation; Microsimulation; Labour supply; Welfare;
    All these keywords.

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • 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

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