For Better or for Worse: Tax Reform in the Netherlands

H. W. Boer ()
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H. W. Boer: VU University Amsterdam

De Economist, 2016, vol. 164, issue 2, No 2, 125-157

Abstract: Abstract This paper presents a structural labour supply model for the Netherlands. The model uses a large, rich data set which allows for precise estimates of labour supply elasticities for several subgroups. We use an advanced tax benefit calculator to calculate households’ budget constraints accurately. Both the large, rich data set and the advanced tax benefit calculator enable us to perform more accurate policy predictions. Simulations show that labour supply elasticities differ among subgroups. Labour supply elasticities for men in couples are low but labour supply elasticities are much higher for cohabiting/married women. Furthermore, elasticities are relatively high for individuals with a lower education and/or non-Western background. Policy simulations provide two important insights. First, an introduction of either a pure flat tax, or an income-neutral flat tax, decreases aggregate labour supply. Second, an EITC for working parents is more effective in stimulating aggregate labour supply than an EITC for all workers or an overall reduction in marginal tax rates.

Keywords: Discrete choice models; Labour supply; Simulated maximum likelihood; Tax reform (search for similar items in EconPapers)
JEL-codes: C25 C52 H31 J22 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10645-016-9272-5

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