Constructing a historic microsimulation model to measure tax-benefit policy intentions in the Netherlands: 1950-1975

Microsimulation techniques are widely used to study the impact of (reforms in) fiscal and social policies in mature welfare states, providing interesting insights into how today policies reduce poverty, redistribute resources among population groups and shape incentives for instance to work or save. While a lot has been written on the historical emergence and expansion of welfare states on an institutional level, hardly anything is known about the impact early-stage welfare states had on the lives of ordinary people. Most European countries saw the emergence and rapid expansion of their welfare states in the three decades after the Second World War, usually referred to as the Golden Age. It is often inferred that this must have been a period in which everyone was better off, in large part attributed to strong social protection. Yet, the empirical evidence is lacking as the literature typically focuses on the top 10% and the role of top marginal tax rates.

In this paper we present for the first time preliminary results from a project that develops a historical microsimulation model for the Netherlands, a particularly interesting case as it went from being one of the lowest to one of the highest spending welfare states. In practice, we simulate cash social transfers, social insurance contributions and the personal income tax for several years between 1950 and 1975 based on official legislative documents. For the present paper the model will be combined with hypothetical household data in order to analyse key policy indicators for household types differing along socio-demographic characteristics and income levels. Such an analysis provides valuable insights into the intentions of historical policymakers. In a later stage the aim is to combine the microsimulation model with representative microdata of the Dutch population in order to study policy outcomes such as redistribution and poverty reduction and to contrast outcomes with intentions.