: The impact of in-work conditionality of Universal Credit on benefit take-up and employment
Universal Credit (UC) is the main means-tested benefit in the UK welfare system, supporting low-income individuals and families. UC replaced multiple benefits with a single payment, while introducing strict job search requirements and in-work conditionality. Individuals who are not working and are deemed capable of work are usually required, among other things, to actively look for a job, while claimants who are working but earning below a threshold are required to take steps to increase their earnings, including looking for alternative jobs and increasing work hours. Failure to comply can result in benefit sanctions. Research shows that UC conditionality can have detrimental effects on individual well-being and mental health, while evidence of its employment effects is mixed. In this study, we jointly model the take-up behaviour and labour supply decisions through the lens of a structural random utility model. Individuals anticipate that receiving UC negatively affects their well-being, and job search requirements may reduce the utility they derive from income and leisure. As a result, they might choose not to take up UC even if they are eligible and modify their labour supply accordingly. In this paper, we compare baseline simulations with estimated parameters with counterfactual simulations where the effects of conditionality are muted/removed. This allows us to quantify the impact of conditionality on a number of outcomes of interest, including benefit take-up and employment.
Read MoreDistributional Effects of Distance-Based Road Pricing: A Behavioral Microsimulation Study for the Brussels-Capital Region
At the intersection of transport economics and public finance, this research contributes to the empirical literature on transport pricing as a policy tool for addressing the externalities of vehicle use. In line with recent technological developments and ongoing policy debates, it provides an ex-ante evaluation of a distance-based road pricing scheme that varies by time (peak and off-peak), location (congested and non-congested zones), and vehicle characteristics. While such systems are widely recognized as efficient, as they better align driving costs with externalities, their implementation in passenger transport remains limited. This absence is largely driven by concerns about distributional effects, highlighting the need for robust empirical evidence on equity implications as a key input for policy feasibility.
Read MoreEstimation and Simulation of RURO Labor Supply Models with Administrative Data: Re-assessing the Evidence from Belgium
This paper estimates a Random Utility Random Opportunity model of labor supply using linked Belgian administrative data . The framework allows individuals to choose among stochastic wage and hours offers, capturing both participation decisions and hours adjustments within a unified structure. By combining tax records, social security data, and demographic registers, we construct precise measures of earnings, hours, and household characteristics.
Read MoreIntegrating Labor Demand Frictions in a Random Utility Random Opportunity Labor Supply Model
This paper studies labor market responses to tax policy using a structural labor supply model estimated within a Random Utility - Random Opportunity framework. The RURO model represents labor supply as a choice among a finite set of work options, where individuals compare the utility of different employment and hours combinations given the opportunities available to them. Preferences are modeled in a random utility framework, while heterogeneity in job availability and constraints is captured through the opportunity structure. This allows the model to account for both choice behavior and limitations in feasible options. We combine this structural labor supply framework with a detailed microsimulation model based on Belgian administrative data, allowing for an accurate mapping from labor supply choices to disposable income and fiscal outcomes.
Read MoreNavigating Trade-offs in German Social Benefit Reform
The current German system of means-tested social benefits, which include citizen’s benefit, housing benefit, and supplementary child benefit, is characterized by high effective marginal tax rates, which are often higher than 90 percent across wide income brackets. As a result, even substantial increases in working hours typically yield small gains in disposable household income. These high effective marginal tax rates apply not only to citizen’s benefit, but also to the housing benefit and supplementary child benefit. Additionally, the coexistence of competing benefits – citizen’s benefit on the one hand, housing benefit and supplementary child benefit on the other – makes the social benefits system complex to navigate for those affected. For these reasons, and against the backdrop of considerable fiscal pressures, there is currently intense political and academic debate about reforming the system.
Read MoreShifting the Tax Burden from Consumption to Income in Croatia: Preserving Efficiency while Reducing Inequality
This paper analyses the distributional effects of a fiscally neutral tax reform in Croatia that shifts the tax burden from consumption to labour income, capital income, and property. Such a reform can be considered justified given the imbalances of the Croatian tax system, which is characterised by an exceptionally high share of indirect taxes and relatively low taxation of labour, capital, and property income compared to the EU average, contributing to regressivity and greater income inequality.
Read MoreTaxing Couples as Singles? A Structural Analysis of Labor Supply for Belgium
Joint taxation of married couples remains a central feature of many income tax systems, with significant implications for labor supply and household welfare. By pooling partners’ incomes into a single tax base, joint filing can create disincentives for secondary earners and generate marriage-related penalties, raising concerns about efficiency and equity. This paper studies the impact of joint taxation on the labor supply of couples in Belgium, where the personal income tax is formally individual but substantially adjusted at the household level. We estimate a Random Utility Random Opportunity (RURO) model of labor supply using rich administrative data linking tax records and demographic information. Using the FANTASI microsimulation model of the Belgian personal income tax, we perform a counterfactual analysis of a shift from joint to individual taxation.
Read MoreThe direct and indirect effects of green tax reform in Belgium. A micro-macro approach.
Carbon pricing combined with revenue recycling through lower labor income taxation achieves carbon mitigation and a decrease in distortionary labor income tax. However, due to distributional concern, there is large societal opposition towards such reforms. The burden of the carbon price is higher for low-income households due to their higher relative expenditures on carbon-intensive goods, such as heating and transport. Moreover, also indirect effects of the carbon price, e.g. job loss in the economy, are feared to additionally fall on the shoulders of those same households. In this paper we combine a micro- and macroeconomic approach to gauge the distributional direct and indirect impacts of green tax reform. A computable general equilibrium (CGE) model is used to simulate impacts on commodity prices and real wage rates for different types of labor. These impacts are fed to a microsimulation model (MSM) of incomes and expenditures, so that we can gauge the distributional impact of several scenarios in green tax reform. We build on the existing top-down literature, discuss consistency between the two models, the choice of the numéraire and the (implicit) assumption on the uprating of the tax schedule and benefit amounts. Moreover, we show the importance of allowing automatic stabilizers to play out in the computable general equilibrium model, i.e. the role of progressive income taxation and benefits. In a traditional CGE, income taxation is modelled as a (macroeconomically calibrated) proportional tax rate. Change in market incomes would not change the tax burden in such model. However, since taxation is progressive, the tax burden responds to (real) changes in market income. The MSM, with the detailed modelling of the non-linear tax-and-benefit system captures this. We propose in this paper a simple bottom-up feedback, in which we update the proportional tax rates in the CGE with the results of a first run of the MSM, as an alternative to the estimation of a parametric (macroeconomic) progressive tax-and-benefit function to be included in the CGE. Not accounting for automatic stabilizer, overestimates the revenue recycling budget available by one half. This is also relevant for fully integrated CGE-MSM models. We find that medium-skilled employees are on average net losers of the impacts on prices and labor demand. Traditional revenue recycling schemes, such as lumpsum transfers or linear labor income tax cuts cannot overturn this welfare loss for medium-skilled, while still guaranteeing progressivity of the net impacts of the reform. However, more targeted revenue recycling schemes, inspired by the existing low wage subsidies in Belgium (the work boni) are equipped to target revenue recycling towards those most hit by the impacts on the labor market. However, robustness checks show that the adequacy of such revenue recycling design depends on the labor market assumptions in the model, specifically whether the decreased demand for medium-skilled can be translated in higher involuntary unemployment in equilibrium.
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