Analysing tax-benefit reforms in the Netherlands using structural models and natural experiments

Abstract

We combine the strengths of structural models and natural experiments in an analysis of tax-benefit reforms in the Netherlands. We first estimate structural discrete-choice models for labour supply. Next, we simulate key past reforms and compare the predictions of the structural model with the outcomes of quasi-experimental studies. The structural model predicts the treatment effects well. The structural model then allows us to conduct counterfactual policy analysis. Policies targeted at working mothers with young children generate the largest labour supply responses but generate little additional government revenue. Introducing a flat tax, basic income or joint taxation is not effective.