Analysing tax-benefit reforms in the Netherlands using structural models and natural experiments

Abstract

We combine the strengths of structural models and natural experiments in an analysis of tax-benefit reforms in the Netherlands. We first estimate structural discrete-choice models for labour supply. Next, we simulate key past reforms and compare the predictions of the structural model with the outcomes of quasi-experimental studies. The structural model predicts the treatment effects well. The structural model then allows us to conduct counterfactual policy analysis. Policies targeted at working mothers with young children generate the largest labour supply responses but generate little additional government revenue. Introducing a flat tax, basic income or joint taxation is not effective.

Alternatives to Paying Child Benefit to the Rich: Means‐Testing or Higher Tax?

“…In particular, the model predicts that females in couples are more responsive than others to changes in both the wage rate and the (effective) marginal tax rate 14. This is a general finding in the labour supply literature (Whalen and Reichling 2017; Eckstein, Keane and Lifshitz 2019; Keane 2022),15 and the elasticity estimates are in line with other comparable micro‐simulation studies; see for example, Thoresen and Vattø (2015), Bargain and Peichl (2016) and de Boer and Jongen (2023). Estimation results (not reported here) also show standard income response regularities, with negative labour supply response to increased non‐labour income (child benefit), but the effects are small.…”