David Sonnewald - Marginal Personal Income Tax Changes: Tax Revenues, Redistribution and Labour Supply Responses

• Presenting author: David Sonnewald (UCLouvain Saint-Louis Bruxelles)

• Authors: Rory Green, David Sonnewald

• Session: C03B - Behavior [2] - Wednesday 14:00-15:30 - Marietta-Blau Hall

• Slides: PDF

We use a massive synthetic data set representative of all taxpayers in Belgium to assess workers’ behaviour in response to marginal changes in the Personal Income Tax (PIT). We employ a novel tool for fiscal policy simulation, the Belgian arithmetic microsimulation model (Beamm), to derive individuals’ disposable income after the PIT and examine equality and welfare indicators. A Random Utility Random Opportunity (RURO) model is estimated to calculate labour supply’s adjustments to modifications in the tax structure. We find that small variations in the net income caused by alterations of the tax-benefit system’s parameters affect individuals’ work choices, even when the redistributive effects are negligible. We suggest potential policy recommendations regarding optimal directional changes rather than explicit amounts.