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The Dutch Tax-Benefit System and Life-Cycle Employment: Outcomes and Reform Options

Author

Listed:
  • Ekkehard Ernst

    (OECD)

  • Timo Teuber

    (University of Bielefeld)

Abstract

An overlapping-generations model with search unemployment is calibrated for the Netherlands to assess the impact of tax-benefit reforms on labour supply. Several reforms are analysed, in particular the introduction of a flat tax and pension reforms. The model demonstrates the potential of these reforms to raise labour supply. In particular, pension reforms, such as lowering replacement rates for pensioners, help to boost participation rates of older workers. On the other hand, a flat tax would promote longer working hours across the board, thereby rising labour supply. However, the introduction of a flat tax is a costly measure and would increase the primary general government deficit by close to 2% of GDP. Simultaneous measures to lower the structural unemployment rate would not only help to avoid adverse effects of such a tax reform on the fiscal balance but would strengthen further the positive effects of a flat tax on working hours. Le système des impôts et des transferts sociaux néerlandais et l'emploi pendant le cycle de vie : Résultats et options de réformes Un modèle à générations imbriquées avec chômage d’équilibre est calibré pour les Pays-Bas afin d’évaluer l’impact des réformes du système d’imposition et de transferts sociaux sur l’offre du travail. Plusieurs réformes sont analysées, en particulier l’introduction d’un impôt à taux unique et des réformes du système des retraites. Le modèle montre le potentiel de ces réformes pour augmenter l’offre du travail. En particulier, les réformes du système des retraites visant à diminuer le taux de remplacement des retraites permettent d’augmenter l’offre du travail des seniors. De l’autre côté, un impôt à taux unique permettrait d’augmenter le nombre d’heures travaillées par personne, ce qui augmenterait l’offre du travail. Néanmoins, introduire un tel impôt est une mesure couteuse et augmenterait le déficit primaire de près de 2% du PIB. Des mesures simultanées de réduire le taux de chômage structurel permettraient de contrebalancer des effets adverses d’une telle réforme des impôts sur le solde budgétaire et augmenterait en même temps son effet positif sur le nombre d’heures travaillées.

Suggested Citation

  • Ekkehard Ernst & Timo Teuber, 2008. "The Dutch Tax-Benefit System and Life-Cycle Employment: Outcomes and Reform Options," OECD Economics Department Working Papers 617, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:617-en
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    File URL: http://dx.doi.org/10.1787/241422478448
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    More about this item

    Keywords

    chômage d’équilibre; dynamic tax-benefit policies; equilibrium unemployment; frictions d’appariement du marché du travail; labour market search frictions; modèle à générations imbriquées; Netherlands; overlapping generation model; Pays-Bas; pension reform; politiques fiscales dynamiques; réforme du système de retraite; réformes du système des impôts; tax reform;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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