Tax Reform and the Dutch Labor Market: An Applied General Equilibrium Approach

Tax Reform and the Dutch Labor Market: An Applied General Equilibrium Approach
ISBN-10
9056351206
ISBN-13
9789056351205
Pages
82
Language
English
Published
1998
Publisher
National Bureau of Economic Research
Authors
Ruud A. de Mooij, Ary Lans Bovenberg, Johan J. Graafland

Description

This paper employs MIMIC, an applied general equilibrium model of the Dutch economy, to explore various tax cuts aimed at combating unemployment and raising labor supply. MIMIC combines modern labor-market theories, a firm empirical foundation detailed description of Dutch labor-market institutions. We develop a small aggregate model which contains the core of MIMIC, namely wage setting, job matching, labor supply demand. In addition to illustrating the main economic mechanisms in MIMIC shows the advantages of employing a larger, more disaggregated model that accounts for heterogeneity, institutional details, and more economic mechanisms. Targeting in-work benefits at the low skilled is the most effective way to cut economy-wide unemployment quality and quantity of labor supply. Cuts in social security contributions paid by employers and subsidies for hiring long-term unemployed reduce unskilled unemployment most substantially. Tax cuts in the higher tax brackets boost the quantity and quality of formal labor supply but are less effective in reducing unemployment and in raising unskilled employment and female labor supply.