1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

The Dutch Tax-Benefit System and Life-Cycle Employment

Outcomes and Reform Options

An overlapping-generations model with search unemployment is calibrated for the Netherlands to assess the impact of tax-benefit reforms on labour supply. Several reforms are analysed, in particular the introduction of a flat tax and pension reforms. The model demonstrates the potential of these reforms to raise labour supply. In particular, pension reforms, such as lowering replacement rates for pensioners, help to boost participation rates of older workers. On the other hand, a flat tax would promote longer working hours across the board, thereby rising labour supply. However, the introduction of a flat tax is a costly measure and would increase the primary general government deficit by close to 2% of GDP. Simultaneous measures to lower the structural unemployment rate would not only help to avoid adverse effects of such a tax reform on the fiscal balance but would strengthen further the positive effects of a flat tax on working hours.

English

Keywords: overlapping generation model, Netherlands, labour market search frictions, equilibrium unemployment, pension reform, dynamic tax-benefit policies, tax reform
JEL: D91: Microeconomics / Micro-Based Behavioral Economics / Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making; J26: Labor and Demographic Economics / Demand and Supply of Labor / Retirement; Retirement Policies; E24: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity; J64: Labor and Demographic Economics / Mobility, Unemployment, Vacancies, and Immigrant Workers / Unemployment: Models, Duration, Incidence, and Job Search
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