Kris De Swerdt

A Belgian Flat Income Tax: Effects on Labour Supply and Income Distribution

The adverse distributional effects of a flat tax are well known and have been documented by empirical research in several countries, including Belgium. Advocates of the flat tax argue, correctly, that these studies do not take into account agents’ behavioural reactions and possible feed back effects. One of the important effects in this context is the potential increase in labour supply and the resulting increase in the taxable base and decrease in unemployment allowances. In this study we calculate the cost recovery of the introduction of a Belgian flat tax, based on a micro-simulation model that includes a labour supply model. We find that there is a clearly positive effect on labour supply and hence also on the tax base. By introducing a revenue-neutral flat tax, labour supply increases by approximately 47,000 full-time equivalents. Yet, compared to a static scenario, the cost recovery only allows the revenue-neutral flat tax to decrease from 38.5% to 37%. Furthermore, there is little or no impact of these employment effects on the regressive nature of a flat tax reform.

Why and How to Construct a Genuine Belgian Price Index of House Sales

Assessing the price evolution of houses on the basis of average sales prices, as is current practice in Belgium, might be misleading due to changing characteristics of the houses sold in the periods observed. A hedonic index which takes into account changes in characteristics is more appropriate. We use the budget surveys of the Belgian Statistical Institute to illustrate how this also applies for Belgium. The estimated hedonic price index for house sales on the secondary market is practically always below the index based on average sales values for the period considered. This demonstrates the need to collect more extensive data on the characteristics of the dwellings sold in Belgium.

Welfare effects of alternative financing of social security. Some calculations for Belgium

We analyse the distributional impact of lowering social security contributions and compensating the revenue loss by an increase in indirect taxes. We empirically assess the distributional consequences of this shift by using two Belgian microsimulation models: MODETE for the tax benefit system, and aster for the indirect tax part. Since the underlying micro database of the tax benefit system does not contain expenditures, we first impute detailed expenditures in the income data survey, by means of semiparametric Engelcurves. The currently living generation of pensioners belongs to the losers by such a reform: They do not profit from the reduced tax on labour income, but pay higher consumption prices. Less obvious, also part of the working population loses. Even not all those who leave unemployment after the reform are gainers. We also investigate the sensitivity of the results w.r.t. the choice of welfare measure to assess the combined change in disposable income, consumer prices and - in the case of flexible labour supply - leisure. We show how the specific choice and parameters of the welfare measure will influence the conclusions, possibly even more than the predictive model for assessing the behavioural reactions in labour supply.

Indirect Taxes and Social Policy: Distributional Impact of Alternative Financing of Social Security

The role of indirect taxes in social policy is investigated by 1) comparing the distributional pattern of indirect taxes with the one of personal income taxes and social security contributions; 2) calculating the indirect tax liabilities for recipients of social benefits; 3) assessing the distributional impact of shifting the financing of social security from contributions to indirect taxes. For this purpose we combine the data of the Household Budget Survey and the Socio-Economic Panel, as well as two microsimulation models, namely ASTER (for the calculation of indirect taxes) and MISIM (for the calculation of personal income taxes and social contributions)

Enriching Income Data with Expenditure Information: A Semi-Parametric Imputation Technique

In this paper we describe a methodology for enriching an income dataset with information on expenditures using a semi-parametric imputation technique. Engel curves are first estimated semi-parametrically on household budget data. We then show how the technique can be used to impute expenditure information into a separate income dataset. As an example we show results from the imputation of expenditures in a separate income file using Belgian household budget data.