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

Lans Bovenberg, Johan Graafland and Ruud de Mooij

No 6693, NBER Working Papers from National Bureau of Economic Research, Inc

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 labor supply. MIMIC combines modern labor-market theories, a firm empirical foundation detailed description of Dutch labor-market institutions. We develop a small aggregate model which contains the core of MIMIC, namely wage setting, job matching, labor supply demand. In addition to illustrating the main economic mechanisms in MIMIC 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 quality and quantity of labor 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 labor supply but are less effective in reducing unemployment and in raising unskilled employment and female labor supply.

JEL-codes: D58 E62 (search for similar items in EconPapers)
Date: 1998-08
New Economics Papers: this item is included in nep-ltv and nep-pub
Note: PE
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Citations: View citations in EconPapers (68)

Published as Bovenberg, A. Lans & Graafland, Johan J. & de Mooij, Ruud A., 2000. "Tax reform and the Dutch labor market: an applied general equilibrium approach," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 193-214, October.

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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 (1998)
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