Tax-Benefit Policy

Home /
Tags /
Tax-Benefit Policy

Alternatives for financing social security in Luxembourg by resident and cross-border households

Given the rapidly evolving structural socio-demographic determinants in Luxembourg (ageing, migrations, cross-border households) and social needs induced, the concern about the funding of the Luxembourg social security system is high on the agenda. This concern could become even more pressing over time, given Luxembourgs specificity in several respects. According to the 2024 Ageing Report of the EPC’s Ageing Working Group, Luxembourg might face an increase of age-related expenditure from 17.2% of GDP in 2022 to 27.9% in 2070, mostly due to pensions (+ 8.3% of GDP over the period). This is the biggest increase expected in EU-countries, a first particularity for Luxembourg. A second specificity is the importance of cross-border commuters in the Luxembourg economy. These represent 43% of total employment in 2022. Given such a context, the countrys social players are looking for avenues of reflection for future concrete proposals. This paper precisely aims to contribute to such a debate. It examines day-after impact of hypothetical parametric changes in social contributions and personal income taxes (the “alternatives”) on the distribution of household disposable income and total public financial receipts from these sources for Luxembourg. Moreover and given the importance of cross-border commuters for the country, we need a microsimulation modelling EUROMOD-based covering both residents and cross-border commuters’ households, the latter population involving an essential innovative extension to previous assessments. We emphasize the structural discrepancies between residents and cross-border households in terms of socio-economic status as well as regarding gross labor and taxable income. Consequently, we show that total receipts from residents are greater than those from cross-border households, even when controlling for population size. Next, we examine 42 alternatives based on the concerns of a key Luxembourg social partner in the context of an ongoing public debate. This examination takes into account the values achieved for a triplet of standard indicators chosen for their simplicity and acceptability to a broad public, and this within the framework of an independent external expertise : total revenues (cross-border households included), the inequality Gini coefficient and the poverty rate (the latter two for the resident population only). We then complete our detailed overview with an evaluation of each alternative according to the selected dimensions altogether. Finally, we evoke a basic “Global Performance Index” which may enlighten conclusions derived from a one or two-dimensional analysis. Although the analysis is specific to Luxembourg, the policy alternatives and methodology considered here may also be relevant for other countries with comparable socio-economic fundamentals, particularly in the context of the EU-wide concern regarding the fiscal implications of population ageing.

BEAMM project : How do we deal with data ? Statistical matching and WGAN generation.

In the framework of the BEAMM project (BElgian Arithmetic Micro-simulation Model), we propose several methods to address data issues. The core of this project is to develop a tax-benefit microsimulation model for Belgium accessible online, requiring intensive data handling. Our challenges consist in creating a unified data set containing variables from different surveys and developing a completely synthetic database for the online development of the BEAMM platform.

Bimic+: microsimulation with labor supply

This paper introduces BIMic+, the labor supply extension of the tax and benefit microsimulation model of the Bank of Italy, BIMic (Curci, Savegnago and Cioffi, 2017). The model follows the Random Utility approach (McFadden, 1974; Aaberge, Dagsvik, and StrØm,1995; Van Soest, 1995). The model focuses on the labor supply behavior of wage earners and imputes wages for workers who are not employed through a two-step Heckman estimation procedure. The utility function departs from the quadratic functional form, which is common in this literature, to avoid decreasing utility in disposable income, a violation of a critical assumption in consumer theory and that underlies all redistributive analyses and is crucial for computing equivalent variations. The main arguments of the utility function are hours and disposable income. The latter is calculated through the static module, BIMic, for each counterfactual hours option. With respect to the literature, we innovate by: (i) matching the observed distribution of hours as a constraint into the optimization problem to avoid overfitting issues (as opposed to the usual approach of drawing taste shocks until the estimated hours match the observed ones). We do so in a way that also matches the distribution of labor income from aggregated tax returns. (ii) organizing the output of the model according to a strand of the public finance literature theoretically connected to optimal taxation. For each policy, we want to characterize the willingness to pay of beneficiaries and the net government cost, taking into account behavioral responses to the policy. We also propose to use these quantities to compute the marginal value of spending public funds in such a policy (Hendren and Sprung-Keyser, 2020; Bourguignon and Landais, 2022). In the last section of our paper, we simulate the labor supply effects of a policy reform as an illustration of how to use our model and its output; specifically, we focus on a cut in social security contribution for mothers with at least two children introduced in Italy in 2024.

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.

Drivers of Income Inequality in Ireland and Northern Ireland

The distribution of income differs in Ireland and Northern Ireland. Differences in demographics, working patterns, wage levels and the tax-benefit system all contribute to these differences and could prove a barrier to increased co-operation on the Shared Island of Ireland. Using harmonised microsimulation models for Ireland (SWITCH) and Northern Ireland (UKMOD), we identify the drivers of the differences in income distribution between Ireland and Northern Ireland. Using a decomposition technique, we isolate the relative contributions of market income differences - attributable to demographics, labour market participation and wage levels - and the tax-benefit system to differences in income distribution in the two jurisdictions. In a final step, we simulate the implementation of the Irish tax-benefit system in Northern Ireland and vice versa. This exercise indicates the potential costs and distributional effect of harmonising the direct tax and welfare system across the two jurisdictions.

Effectiveness of Minimum Income Support in Bulgaria: A Microsimulation Analysis of 2023 Reform of the Monthly Social Assistance Benefit

Over 15 years since the EU integration of Bulgaria an ambitious reform has been introduced in 2023 regarding the minimum income protection scheme operated within the social policy mix, namely the Monthly Social Assistance (MSA) benefit. The reform addressed European Council’s country specific recommendations (CSRs) to Bulgaria within the framework of the European Semester and had several ambitious goals, among which to improve benefit coverage, adequacy, and targeting. The long years maintained MSA scheme had limited reach due to many strict eligibility criteria so the reform aimed in expanding the inclusion of more vulnerable individuals and families. Besides, the monetary values of the benefit were previously not indexed to inflation as well as outdated means-test thresholds were implemented. From this point of view, the 2023 reform sought to tie the benefit amounts to the national poverty line in order to make them more responsive to the rapidly shifting economic circumstances since the 2022 energy crisis and related inflationary pressures. Moreover, the introduction of annual adjustment aimed in improved reflection of MSA regarding the needs of different groups (e.g., elderly, disabled, single parents). The microsimulation analysis of such effects expected to be achieved by the 2023 MSA reform is performed for the period 2023-2025 using the Bulgarian component of EUROMOD: the tax-benefit microsimulation model of the EU. Most up-to-date dataset is utilized, derived from SILC 2023 survey measuring the incomes for year 2022. Particular indications for the shifts in selected poverty and inequality indicators are evaluated, having in mind that the reform was intended to narrow the poverty gap and improve social inclusion.

Evaluating Labour Supply Responses to an In-Work Benefit for Spain

Spain records one of the highest rates of in-work poverty in the European Union (Eurostat, 2024). Despite this, the development of policies specifically targeted at supporting low-income workers has been limited, especially when compared to other European countries (Laun, 2019). This policy gap, combined with the expansion of minimum income guarantees schemes, may weaken work incentives by narrowing the income gap between employment and nonemployment, thereby increasing the risk of poverty traps among low-income households (Domínguez-Olabide & Zalakain, 2023).

Evaluating the results of a social benefit simulation using individual administrative data on benefit receipt

The simulation of social benefits is an important application of tax-benefit microsimulation models in social policy research. Simulation outcomes inform about the (potential) effects of social policies and policy reforms. Furthermore, tax-benefit simulations allow for an evaluation of the interactions of different benefits in complex benefit systems. However, the quality of the simulation outcomes has consequences for the assessment of the effectiveness of the policy. An increasing number of recent studies on benefit non-take-up as one measure for the ineffectiveness of social policies explicitly address the difficulties in determining benefit entitlements using tax-benefit microsimulation models (Tasseva 2016, Bruckmeier et al. 2021, Doorley and Kakoulidou 2024, Bargain et al. 2012, Harnisch 2019). Consequently, the validation of the simulation outcomes is an important step in the application of tax-benefit simulations. Our study contributes to the literature on validating the results of tax-benefit simulation models. We examine how well the results of an open-source tax-benefit microsimulation model for Germany (GETTSIM) on means-tested minimum income (UBII) entitlements match the benefits contained in administrative data on UBII. Our analysis has two objectives: First, the results should provide an assessment of the validity of the UBII simulation results using GETTSIM. Second, generalized conclusions for policy and non-take-up analyses based on tax-benefit microsimulation models will be drawn. The results show that UBII entitlements are in most cases correctly simulated. In an adapted version of GETTSIM we have used, only for 3 to 4 percent of all observations no UBII entitlement was simulated (beta error). The simulation also allowed a precise distinction between UBII and existing similar benefits (housing and means-tested child benefit) for most observations. A closer look at individual deviations between recorded and simulated entitlements reveals significant deviations for migrants, especially from crisis countries, which was particularly relevant in 2017 and 2018. Furthermore, for households with many family members, with children or employed persons, the simulation at the individual becomes less precise. The results also provide some insights for the analysis of eligibility based on tax-benefit simulations in general. In social policy systems with overlapping benefits, even with very good data quality, misspecification of benefit entitlements cannot be avoided to a relevant extent, especially when the benefits pursue similar objectives and discretionary decisions occur at the administrative level. Since the mean values of various large sociodemographic groups are relatively accurately determined in the simulation, calibrating the simulated recipient numbers can compensate for these inaccuracies. The analysis at the individual level has shown that simulation quality decreases particularly for subgroups with more complex life circumstances, such as households with children. This applies in particular to comprehensive last-resort minimum income systems that provide benefits in the household context and take all types of household income into account. Temporary special circumstances, like a national or global crisis, can also lead to simulation results that do not reflect actual payments. In crisis years, consideration should be given to excluding certain particularly affected subgroups from the analysis or to choose other simulation years, if possible.

Firm microsimulation and VAT policy analysis

I am a Research Associate at PolicyEngine, a nonprofit that provides free, open-source software to compute the impact of public policy in the US and UK. Previously, I served as a researcher at the London School of Economics. My work focuses on microsimulation, economic modelling, and public policy analysis, particularly the UK tax and benefit system.

From Annual to Monthly Simulation of Social Assistance in Sweden

FASIT is a microsimulation model primarily used by the Swedish Parliament and Government to calculate the effects of various regulatory changes. Statistics Sweden (SCB) is responsible for the maintenance and development of the model. This presentation explores experiences moving from annual to monthly data when simulating social assistance.

Imputing lifetime incomes: Baseline projections for the UK

Most studies that report distributional comparisons of income focus on income evaluated over periods that vary between one week and one year. Distributional studies of weekly income recognise the importance of short-term constraints, particularly in relation to material deprivation and poverty. Distributional studies of annual income recognise the capacity of many people to save the proceeds of temporary income peaks to carry them through temporary income troughs. Income measured over longer periods is rarely analysed due to the relative (in)availability of survey data, rather than any more fundamental motivation. Unfortunately, analysis of lifetime incomes for contemporary population cross-sections is complicated in part by the limited historical context captured by existing panel studies, and in part because future incomes are unobservable. Microsimulation is one method to fill gaps in the available statistical record. This study describes how microsimulation methods were used to project lifetime incomes for a contemporary population cross-section of the UK.

Increasing the minimum wage to decrease labor cost ? An analysis by microsimulation for the case of France

This paper analyzes the reduction in total labor costs induced by an increase in the minimum wage in France. Using the Ines microsimulation model developed by the French National Statistical Institute (Insee), I simulate a 2% increase in wages for all workers paid at the minimum wage. Due to the complex of exemptions of the French socio-fiscal system, an increase in the minimum wage leads to a reduction in employers’ social security contributions (SSCs) for workers earning between 1.01 and 3.5 times the minimum wage. I confirm existing results from L’horty (2000): overall, a 1% increase in the minimum wage reduces employers’ SSCs by approximately €1.67 billion.

INFORM2, DWP’s main forecasting model for Universal Credit

INFORM2 is a dynamic microsimulation model developed within the Department for Work and Pensions (DWP) for forecasting claim volumes that underpin the benefit expenditure forecast for Universal Credit. Development began in 2018 and builds on earlier iterations of the INFORM framework. The model simulates independent benefit units and individuals on a monthly time step, using Universal Credit (UC) administrative data as its core input.

Integrating 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.

Missing Out on Social Assistance: The Consequences of Benefit Non Take-Up in the UK

Benefit non take-up refers to situations in which individuals or households do not claim social benefits to which they are legally entitled, due to low expected financial gains or costs associated with claiming, including administrative complexity, time and effort, stigma (Moffitt, 1983). While public debate has often focused on benefit fraud, non take-up is considerably more widespread (Ko and Moffitt, 2022). Low take-up undermines the redistributive capacity of welfare states and limits their effectiveness in protecting households against poverty and economic insecurity (Van Oorschot, 1991; Matsaganis et al., 2008). An alternative interpretation, however, views non take-up as a screening mechanism that contains public expenditure by discouraging claims from less needy households (Nichols and Zeckhauser, 1982). In the UK, existing micro-level studies of benefit take-up are relatively dated and rely largely on cross-sectional data (Blundell et al., 1987; Pudney et al., 2006; Zantomio et al., 2010). As a result, there is little evidence on the longer-term consequences of non take-up, partly due to the lack of longitudinal data linking benefit eligibility to observed outcomes. This study addresses this gap by combining longitudinal survey data with tax-benefit microsimulation, complementing recent work on the determinants of non take-up in the UK (Vella and Richiardi, 2024) by focusing instead on its consequences. The main objective of the study is to examine the consequences of non take-up of means-tested benefits for eligible individuals over time, with a focus on labour market outcomes, poverty, physical and mental health, and subjective wellbeing. The analysis combines the UK Household Longitudinal Study (UKHLS) with the UK tax-benefit microsimulation model, UKMOD. UKHLS provides annual panel data on income, employment, household composition, health, and wellbeing. Embedding UKMOD within a longitudinal survey represents a key methodological innovation, allowing benefit eligibility to be reconstructed consistently over time and take-up to be modelled dynamically. Non take-up is identified by comparing observed benefit receipt, based on self-reported information in UKHLS, with simulated eligibility derived from UKMOD. The analysis covers the main social assistance programmes in the UK, namely Universal Credit and its legacy benefits, Pension Credit, and Child Benefit. Prior research shows that eligible individuals who claim benefits differ systematically from those who do not, with non-claimants typically having higher incomes, higher levels of education, and lower dependency loads. In addition, take-up is subject to state dependency, in the sense that individuals who claim benefits once are likely to continue claiming in subsequent periods, and vice versa. To address this selection, propensity score matching is used to construct comparable groups of eligible claimants and eligible non-claimants based on observed characteristics measured prior to take-up. Outcomes are then analysed using a difference-in-differences design, comparing changes over time between the two groups. In addition, individual fixed effects regressions are estimated, exploiting within-person variation in take-up status across waves.

Modelling France’s Agirc-Arrco supplementary pension scheme

Modelling France’s Agirc-Arrco supplementary pension scheme. The Agirc-Arrco federation runs a pension scheme complementary to France’s first pillar CNAV Old-Age pension scheme. This compulsory pay-as-you-go point system is second only to the CNAV by its size. It covers most private sector wage-earners, with 27 million contributors over a given year, and represents on average a third of pension income paid to 14 million pensioners. It is run together by trade unions and employer organisations. They determine most regulatory aspects of the scheme, such as contribution rates or the point’s buying price. Most notably, they set the annual revision of the point value to guarantee Agirc-Arrco’s reserve funds are at least equivalent to 6 months of benefits for the next 15 years. To cover this and other projection needs, the Agirc-Arrco technical department developed a microsimulation model in native Python to project the system’s future income and expenditure at an individual level until 2070 through a range of economic, demographic and regulatory hypotheses. Using a random sample of more than 2 million contributors, retirees and survivor pensioners, it models affiliation to the Agirc-Arrco scheme, labour-market transitions, wages, mortality and retirement decisions. It computes individual contributions, points bought during individual careers, and retirement and survivor pensions consequently paid by Agirc-Arrcos pension system. It is thus a key input for Agirc-Arrco’s decision makers, to ensure the scheme’s sustainability goals are met. It also provides periodic insights regarding the system’s joint management by social partners and is used for aggregate projections of the French pension system coordinated by the Retirement Orientation Council (COR). This presentation provides an overview of Agirc-Arrcos microsimulation model main features and graphical results, shedding light on France’s second most important pension scheme and sharing methodological choices of interest to the microsimulation community,

Modelling Social Assistance Take-Up with Machine Learning in Slovakia

The Material Need Benefit (MNB) constitutes the core component of the Slovak social assistance system. It is a means-tested transfer whose eligibility depends on household composition, income thresholds, and asset tests. In the TATRASK model, which is a static microsimulation model of the Slovak tax and transfer system based on linked administrative data collected by government authorities, the MNB is simulated through the application of legislative rules subject to data availability constraints. As is common in microsimulation models of this type, both the number of simulated beneficiaries and the aggregate fiscal cost are substantially overestimated. This limitation stems primarily from the inability to model benefit take-up accurately due to missing or unobserved information in the data. To address this issue, first an expert-based adjustment approach is implemented, where the number of potential beneficiaries is reduced through a set of rules reflecting observed behavioural patterns in the data. While this method improves model performance and reduces overestimation, it remains limited in its ability to fully capture take-up behaviour. As an alternative, this contribution applies machine learning techniques to model MNB take-up. Specifically, XGBoost models are trained to predict the probability of benefit receipt and to identify likely beneficiaries within the underlying dataset. The results demonstrate that the machine learning approach clearly and substantially outperforms both the baseline TATRASK simulation and the expert rule-based adjustment in terms of accuracy. Moreover, cross-temporal validation confirms the robustness and stability of the ML model, even in the presence of policy changes affecting MNB eligibility.

Navigating 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.

Nowcasting the BELMOD input dataset: Comparing techniques for an administrative dataset

The BELMOD microsimulation model of the Belgian Federal Public Service Social Security is based on an administrative input dataset. While the model’s policy simulations are updated twice a year, the most recent input dataset currently available refers to 2019. As a result, the discrepancy between the input data and the present situation has grown to several years. This gap can be reduced through nowcasting methods, by updating the outdated input data with more recent information to bring it more in line with the present situation, thereby making the data more suitable for simulations relating to the most recent years. We applied nowcasting to the BELMOD input dataset by incorporating both demographic changes and changes in individuals’ labour market status. To assess which nowcasting approach is most suitable for BELMOD, we developed and compared three different methods. In the first two methods, labour market status transitions are modelled using, respectively, a parametric and a non-parametric approach. For individuals experiencing a labour market status transition, the relevant variables in the dataset are subsequently adjusted. In addition, demographic changes are incorporated in these two methods through reweighting. In the third method, both labour market status and demographic changes are implemented through reweighting. We validated these three methods using external statistics on the number of income and benefit recipients, as well as aggregate income and benefit amounts.

Self-interest, stated preferences and the taxation of couples

A recent and growing literature studies policy preferences empirically using survey experiments. A frequent approach in welfare economics, cost-benefit-analysis and political economy is to aggregate policy preferences assuming rationality and self-interest. In this paper we compare the two approaches in a specific policy domain, the tax treatment of married couples. We explore whether political economy arguments can explain the persistence of joint taxation in Germany. First, we use a sufficient statistics approach rooted in utility-maximizing behavior. With this approach we estimate the population shares of winners and losers from a revenue-neutral reform towards individual taxation, according to material self-interest. Second, we report on a large scale survey experiment to elicit stated preferences among a representative sample of the German population. Both methods show that the tax treatment of couples in Germany is highly controversial. Based on material self-interest, the support for a reform towards individual taxation is slightly below the majority threshold. Since the race is so close, views on just taxation or on the status of marriage can actually make a difference. We find that, according to the preferences stated in the survey experiment, support for a reduction of marriage bonuses is lower than suggested by the analysis based on self-interest.

Shifting 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.

Signals on Budget Day: Media Attention and Public Beliefs in Ireland

Ireland is an outlier among European countries in that it has no automatic indexation of tax and welfare parameters. As a result, the annual Budget announcement plays a significant role, both in shaping the government’s discretionary policy priorities and in influencing people’s expectations about the future. In this project, we study Budget Day as a signalling device along two margins. First, we ask how discretionary policy choices across spending areas respond to political economy forces: media attention, organised interest-group pressure, and electoral cycles. Second, we examine whether Budget announcements shift individuals beliefs about redistribution and uncertainty about the future, and whether these responses are heterogeneous by predicted exposure to the announced measures. In terms of conceptual framework and methods, we build on the literature on central bank communication, which uses language analysis and treats policy announcements as signals that shape expectations (Hansen et al., 2018; Ehrmann and Talmi, 2020). A related strand of work studies the political economy of budget trade-offs (Adolph et al., 2020) and the role of information flows in distinguishing anticipated from unanticipated fiscal policy in budget announcements (Leeper et al., 2013). Balladares and Garcia-Miralles (2025) trace fiscal drag in Spain over time, while in the Irish context (Boyd and McIndoe-Calder, 2025) the focus is on personal income tax over a shorter horizon (2019-2023), using microsimulation modelling with EUROMOD. However, there is little long-run evidence on Irish budget cycles or their political determinants beyond the aggregate analysis in Cousins (2007). In the first part of this paper, we build a new historical dataset of Irish budgets from the mid-1990s onward, coding discretionary changes by broad policy area. We benchmark each years policy package against a counterfactual that mechanically indexes key tax and welfare parameters to price and wage inflation. Deviations from this benchmark provide a transparent measure of discretionary policy priorities. We then relate these deviations to (i) topic-level media salience indices constructed using text analysis of newspaper coverage, (ii) measures of lobbying intensity proxied by pre-budget submissions and public representations by sector, and (iii) electoral timing and macroeconomic conditions. In the second part, we analyse individual-level survey data to examine perceptions of redistribution, fairness, and uncertainty about the future in relation to budget announcements. Microsimulation using EUROMOD allows us to account for heterogeneity in responses, in particular whether individuals or households that are likely to gain or lose from policy changes react differently. We exploit variation in interview timing relative to Budget Day using the Irish sample of the European Social Survey, complemented by Eurobarometer data. Our work provides a systematic assessment of Irish budget priorities and contributes to the debate on whether indexation would reduce fiscal drag and depoliticise distributional choices, or whether discretionary budgets are instead responsive to public preferences.

Taxing 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.

The development of an integrated framework combining economic efficiency, social justice, and ecological effectiveness using microsimulation modelling

This research explores how microsimulation modelling can be used to develop an integrated framework that evaluates economic efficiency, social justice, and ecological effectiveness simultaneously.

The Distributional Effects of Carbon Pricing in Germany

Even though economists prefer the instrument of carbon pricing to reduce greenhouse gas emissions over regulatory policies, fears of regressive effects that disproportionately burden low-income households lead to low public support, hindering the political feasibility of carbon pricing. In light of an ongoing policy debate and lacking evidence for the German context, this paper investigates the distributional effects of carbon pricing in Germany, as well as possible redistributive polices. I analyze three channels through which carbon pricing affects the distributional outcome: the direct price effect, the indirect price effect and the behavioral response. I then compare a lump-sum transfer, a targeted transfer per income deciles and reductions in labor and income taxes as redistributive policies, providing evidence on their effect on counteracting adverse distributional consequences from carbon pricing.

The ex-ante distributional impact of the Italian reform of the participation exemptions regime

Corporate tax microsimulation models are essential tools to estimate tax revenue, assess the impact of tax reforms, and carry out distributional analyses at the firm level. The microsimulation model for firms currently being developed at the Bank of Italy aims at accurately simulating the effective tax burden on corporations to allow for the routine evaluation of fiscal policies geared towards the corporate sector. The model is the first to exploit information on tax liabilities contained in detailed financial statements to reconstruct the corporate income tax base at the firm level, which is next used for model validation. This represents an innovative approach to carry out micro-based model validation despite the lack of access to tax return microdata. The model can quantify the gap between financial accounting and tax accounting results, thanks to the modelling of major fiscal adjustments, such as participation exemptions, limits on interest deductibility, and tax depreciation, and replicate a few key stylized facts, such as: i) the widespread divergence between accounting and tax profits, with one fifth (one fourth) of firms with negative (positive) accounting profits showing positive (negative) tax profits; ii) the inverse U-shape of effective tax rates in firm size; iii) the greater impact of participation exemptions and interest payment deductions on large firms’ effective tax rates; iv) the countercyclical usage of loss carryforwards; v) the weaker impact on effective tax rates of accelerated depreciation schemes for intangible vs. tangible assets The work proposes an ex-ante evaluation of the most sizeable fiscal policy geared towards firms enacted with the Italian budget law in 2026, namely the introduction of a 5% participation threshold for the eligibility to the participation exemption (PEX) regime. The PEX regime seeks to eschew double taxation of corporate profits by making participation income (in the form of either dividends or capital gains) exempt. The EU “Parent-Subsidiary” Directive establishes that double taxation arises when the parent company holds, directly or indirectly, a participation stake worth at least 10%. Prior to the budget law 2026, the Italian PEX regime exempted all participation income. The newly introduced policy therefore partially aligns the Italian regime with the EU benchmark. The ex-ante distributional impact of the reform is hard to gauge. On the one hand, firms receiving participation income are less than 10% of total firms. On the other, there is a large empirical literature documenting that shareholding portfolio diversification increases with firm size. By exploiting Orbis information on the size of direct and indirect shareholdings, this work calculates the impact of the reform on firm effective tax rates, and tries to understand whether it was overall progressive, namely it redistributed the fiscal burden towards the largest firms. Finally, it discusses how potential endogenous responses in terms of portfolio reallocation might influence the results.

The impact of social transfers for self-employed

We examine the role of social transfers for self-employed in Belgium using the microsimulation model BELMOD. The self-employed represent a significant and increasing group in Belgium. The measurement of income from self-employment comes with particular methodological challenges and research shows that material deprivations tends to be lower for self-employed compared to employees. Despite the existing limitations we will focus on financial poverty for self-employed. The combination of microsimulation techniques and administrative data allows us to analyze which parts of the tax-benefit system contribute most to the poverty reduction for self-employed. We use administrative data and BELMOD to study the poverty reducing role of various household income sources for the self-employed in more detail. Other incomes in the household, besides the income from the individual self-employed person, reduce the poverty risk significantly. For example, the poverty risk of self-employed is reduced by more than half when taking into account labour incomes from other household members. Furthermore, it is reduced by about a third when taking into account all social benefits in the household. Our results indicate that poverty is reduced substantially by social transfers, but to a different degree for various family types. Child allowances clearly contribute to the reduction of the poverty risk for self-employed with children. For families without children, we see the largest reduction in the poverty risk for the household by pension related benefits, followed by contributory sickness/disability benefits. This work is a first step in trying to identify groups of vulnerable self-employed and assessing the role of the tax-benefit system.

The impact on income and labour supply of the limitation of the unemployment benefit in Belgium

Nearly half of the unemployed persons are excluded from the unemployment benefit system by the re-form which has been gradually implemented since 1 January 2026 in Belgium, particularly those with a long unemployment history. The main feature of the reform is to limit the duration of unemployment benefit payments to a maximum of two years, depending on work experience, instead of unlimited payments in time as in the old system. Further, the progressivity of the benefit scheme has been strengthened by an increase of 10% of the ceiling amount during the six first months of unemployment, and a re-duction to a lump sum for unemployed persons who are entitled to payments after one year of unemployment. This paper gives the ex-ante evaluation results on income and labour supply of this reform. The simulation exercise concludes that approximately one third of the excluded persons are expected to return to work, approximately 40% are predicted to receive the social minimum income. The remaining fourth withdraw from the labour market without replacement income, resulting in a significant loss of disposable revenue. Nonetheless the impact on the poverty rate is moderate. Older unemployed, aged 55 years and over, are particularly affected by the reform as more than three fourth of them lose their benefit, representing nearly 22% of the excluded sample. Regional differences are substantial, with Flanders being the least impacted and Brussels-Capital region the most. To fulfil the evaluation, we use: