Tax Reform and the Dutch Labour Market: An Applied General Equilibrium Approach

Lans Bovenberg, Ruud de Mooij and Johan Graafland

No 1983, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper employs MIMIC, an applied general equilibrium model of the Dutch economy, to explore various tax cuts aimed at combating unemployment and raising labour supply. MIMIC combines modern labour-market theories, a firm empirical foundation, and a detailed description of Dutch labour-market institutions. We develop a small aggregate model, which contains the core of MIMIC, namely wage setting, job matching, labour supply and labour demand. In addition to illustrating the main economic mechanisms in MIMIC, the small model shows the advantages of employing a larger, more disaggregated model that accounts for heterogeneity, institutional details, and more economic mechanisms. Targeting in-work benefits at the low skilled is the most effective way to cut economy-wide unemployment but damages the quality and quantity of labour supply. Cuts in social security contributions paid by employers and subsidies for hiring long-term unemployed reduce unskilled unemployment most substantially. Tax cuts in the higher tax brackets boost the quantity and quality of formal labour supply but are less effective in reducing unemployment and in raising unskilled employment and female labour supply.

Keywords: applied general equilibrium model; Labour Supply; Structural Unemployment; tax policies; The Netherlands (search for similar items in EconPapers)
JEL-codes: D58 E62 J41 (search for similar items in EconPapers)
Date: 1998-09
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Citations: View citations in EconPapers (13)

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Journal Article: Tax reform and the Dutch labor market: an applied general equilibrium approach (2000)
Working Paper: Tax reform and the Dutch labour market: An applied general equilibrium approach (2000)
Working Paper: Tax Reform and the Dutch Labor Market: An Applied General Equilibrium Approach (1998)
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