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

Area of Science:

• Economics
• Econometrics
• Public Policy Analysis

Background:

• Evaluating the impact of tax-benefit reforms on labor supply is crucial for effective economic policy.
• Traditional methods often struggle to accurately predict policy outcomes.
• Combining structural modeling with natural experiments offers a robust approach to policy evaluation.

Purpose of the Study:

• To assess the predictive accuracy of structural discrete-choice models for labor supply in the context of Dutch tax-benefit reforms.
• To leverage validated structural models for counterfactual policy analysis.
• To identify the most effective tax-benefit reforms for increasing labor supply and government revenue.

Main Methods:

• Estimation of structural discrete-choice models for labor supply behavior.
• Simulation of past tax-benefit reforms using the estimated structural model.
• Comparison of model predictions against outcomes from quasi-experimental studies.
• Conducting counterfactual policy simulations for various reform scenarios.

Main Results:

• The structural discrete-choice model demonstrated strong predictive accuracy for treatment effects of past reforms.
• Policies specifically targeting working mothers with young children yielded the most significant labor supply responses.
• These targeted policies, however, generated limited additional government revenue.
• Broad reforms such as a flat tax, basic income, or joint taxation were found to be ineffective in influencing labor supply.

Conclusions:

• Structural models are a reliable tool for analyzing and predicting labor supply responses to tax-benefit policies.
• Policy interventions should be carefully designed; targeted approaches can be effective for specific groups but may not maximize revenue.
• General tax reforms like flat taxes or basic income appear less effective for stimulating labor supply in the Dutch context.