a decade of tax-benefit policies in belgium. a simulation exercise to estimate the change in redistributive

1. a decade of tax-benefit policies in belgium. a simulation exercise to estimate the change in redistributive effect. EUROMOD Research Workshop 2013 – Lisbon Dieter Vandelannoote (University of Antwerp) Gerlinde Verbist (University of Antwerp)

2. aim of the paper • Estimate the redistributive impact of changing tax-benefit policies in Belgium over the past decade. • Investigate the distributive effects of changes in 1) personal income taxes 2) social insurance contributions (ssc) 3) social benefits • What would inequality and poverty be in Belgium if tax-benefit policies had not changed over time?

3. Policy changes 2007 -2011 • Social security contributions: - Different implementation of the workbonus. - No indexation of the amounts used for the calculation of the special ssc. • Taxes: - Different implementation of the general base tax allowance / the regional tax credit scheme. - Change of the income testing of tax credits for unemployment. Since 2009 on an individual level. • Benefits: • Child benefits: change in implementation of the back-to-school premium.

4. Policy changes 2001-2007 • Big tax reform: • 2 highest tax rates (52,5% and 55%) are abolished. Middle brackets were broadened. • 2001: crisis tax of 3% (abolished in 2003). • 2005: New system of mortgage deduction: dwelling bonus. • Child benefits: • 2001: no back-to-school premium or specific supplement for single parents. • Different calculation of the guaranteed child benefit. • No results for 2001 presented: 2001 Euromod version produces some strange results, further investigation is necessary.

5. Methodology • Focus on 3 years: 2001 – 2007 – 2011. • Dataset: BE-SILC 2010 (incomes 2009), uprated to 2011 as our baseline. • BE-SILC 2010 with new calculated gross incomes (better estimation of poverty / inequality indicators, see presentation tomorrow). • Policies simulated within Euromod: ssc / taxes / benefits (only bch_s / bchba_s / bsa_s / bsaoa_s)

6. Methodology • A → C: total effect (both uprating and policy changes). • A → B: uprating effect. • B → C: policy effect. • different from the methodology used by Essex. • advantage of this new methodology: no deflating of parameters in Euromod itself. Only downrating of data is necessary.

7. Methodology - example • total effect: 0% • uprating effect: -0,42% • policy effect: 0,42% • We call this a policy effect, even though there is a system of automatic indexation in Belgium (this remains a policy choice!)

8. First results – net disposable income • Change in disposable income (%)

9. First results – ssc • Change in disposable income (%) due to SSC

10. First results – Personal Income Taxes • Change in disposable income (%) due to PIT

11. First results – simulated benefits • Change in disposable income (%) due to benefits

12. First results – inequality

13. First results – poverty Poverty, 60% of the median equivalent disposable income (ils_dispy)

14. To do • Check 2001 policy system and calculate outcomes 2001. • Expand outcome indicators (e.g. decomposition over population groups). • Look into detail at specific income components. • Check significance of changes (see presentation Lina Salanauskaite tomorrow).

15. thanks for your attention