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Tax reform and the Dutch labour market: An applied general equilibrium approach.

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Disciplines
  • Economics

Abstract

PII: S0047-2727(99)00116-4 Journal of Public Economics 78 (2000) 193–214 www.elsevier.nl / locate /econbase Tax reform and the Dutch labor market: an applied general equilibrium approach a b c ,*A. Lans Bovenberg , Johan J. Graafland , Ruud A. de Mooij a Tilburg University, P.O. Box 90153, 5000 LE Tilburg, The Netherlands bCPB Netherlands Bureau for Economic Policy Analysis, P.O. Box 80510, NL-2508 GM, The Hague, The Netherlands cCPB Netherlands Bureau for Economic Policy Analysis, P.O. Box 80510, NL-2508 GM, The Hague, The Netherlands Abstract This paper develops an applied general equilibrium model to explore various tax cuts aimed at combating unemployment and raising labor supply. The model calibrates modern labor-market theories on wage setting, job matching, labor supply and labor demand on Dutch data. It represents the core of a larger applied general equilibrium model for the Netherlands called MIMIC. Simulations reveal that targeting in-work benefits at the low skilled is the most effective way to cut economy-wide unemployment. However, targeting is likely to damage the quality and quantity of labor supply. 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. Ó 2000 Elsevier Science S.A. All rights reserved. Keywords: Tax policy; Structural unemployment; Labor supply; Applied general equilibrium model; The Netherlands JEL classification: D58; E62; J41 1. Introduction Many European countries suffer from high structural unemployment, especially *Corresponding author. Tel.: 131-73-383-364; fax: 131-73-383-350. E-mail address: [email protected] (R.A. de Mooij). 0047-2727/00/$ – see front matter Ó 2000 Elsevier Science S.A. All rights reserved. PI I : S0047-2727( 99 )00116-4 194 A.L. Bovenberg et al. / Journal of Public Economics 78 (2000) 193 –214 among the unskilled. Various reforms of labor-market institutions and the t

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