Piecemeal Modeling of the Effects of Joint Direct and Indirect Tax Reforms

Bart Capéau, André Decoster and Stijn Van Houtven
Authors registered in the RePEc Author Service: Bart Capéau

Public Finance Review, 2024, vol. 52, issue 1, 111-149

Abstract: In this article, we elicit the assumptions needed for an assessment of a joint reform of personal income and indirect taxes in a consistent conceptual framework. One often lacks an encompassing model for both labor supply decisions in real world tax and benefit contexts and the allocation of disposable income to commodities. We characterize households’ labor supply decisions by a random utility random opportunity model of job choice. We illustrate the framework with a Belgian tax reform proposal that shifts the burden away from labor taxes to indirect taxation. We find substantial empirical evidence that, both from a distributional and from a budgetary perspective, it is important to account for the impact of indirect taxes on the labor supply decision of households. The cost recovery effects of the tax shift are negative. This is, among other things, explained by the income effect in our job choice model.

Keywords: job choice; labor supply; tax reform; joint direct and indirect tax reform; microsimulation (search for similar items in EconPapers)
Date: 2024
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https://journals.sagepub.com/doi/10.1177/10911421231198738 (text/html)

Related works:
Working Paper: Piecemeal modelling of the effects of joint direct and indirect tax reforms (2018)
Working Paper: Piecemeal modelling of the effects of joint direct and indirect tax reforms (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:52:y:2024:i:1:p:111-149

DOI: 10.1177/10911421231198738

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