EUROMOD 20 th Anniversary Conference Essex 5 6 September : VERSATILE ENOUGH TO EVALUATE A TAX SHIFT

Transcription

1 EUROMOD 20 th Anniversary Conference Essex 5 6 September : VERSATILE ENOUGH TO EVALUATE A TAX SHIFT B. Capéau, A. Decoster, T. Strengs & T. Vanheukelom Department of Economics KU Leuven Preliminary Version and results: please do not quote or use without permission of the authors Contact: andre.decoster@kuleuven.be

2 Plan of the talk 1. Aim of the talk 2. The tax shift package 3. Impact effects distributional budgetary 4. EM+ including indirect taxes 5. EM++ including labour supply effects 6. Conclusion EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 2/57

3 1. Aim of the talk 20: so versatile one can (even?) evaluate a tax shift from personal income taxes & SSC, to income from capital indirect taxes mainly motivated by efficiency (=> employment) in which also SSC_er play important role EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 4/57

4 2. The package of the tax shift expenditures Personal Income Tax: Expansion of tax deductible professional expenses Increase of tax free allowance ( ) Phasing out of the 30% tax bracket Increase of the lower limit of the 45% tax bracket Expansion existing in work tax credit 'fiscal workbonus Social Security Contributions employee: expansion of social workbonus employer: 33% 25% EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 5/57

5 2. The package of the tax shift expenditures Expansion of tax deductible professional expenses Marginal rate applied for deduction 35% 30% 25% 20% 15% 10% 5% 0% 30% 27.8% Pre reform Post reform 10% 5% 3% Annual gross taxable income EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 7/57

6 2. The package of the tax shift expenditures Expansion of tax deductible professional expenses Amount of deduction Maximum amount = EUR Maximum amount = EUR 30% 3% 5% 10% Pre reform Post reform % Annual gross taxable income EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 9/57

7 2. The package of the tax shift expenditures Change in tax brackets and basic allowance 55% 50% Marginal tax rate 45% 40% 35% 30% 25% 20% % 10% 5% Pre reform 0% Annual net taxable income EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 10/57

8 2. The package of the tax shift expenditures Change in tax brackets and basic allowance Marginal tax rate 55% 50% 45% 40% 35% 30% 25% 20% 15% % 5% Post reform Pre reform 0% Annual net taxable income EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 11/57

9 2. The package of the tax shift expenditures Expansion social workbonus + 'fiscal workbonus 200 Amount of deduction Social workbonus Fiscal workbonus Pre reform Post reform Full time equivalent gross monthly income EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 14/57

10 2. The package of the tax shift financing side VAT electricity: 6% 21% increase in excises on: diesel fuel tobacco alcoholic drinks + sugar containing beverages capital income: withholding tax 25% 27% speculation tax (small), and other small measures EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 15/57

11 3. Impact effects: budgetary (bn euro s) Other exp. 0.5 Soc. Assist. 1.5 SSC 4.2 Financing gap % bracket SoSeCO Fiscal Work bonus Other fin % bracket 1.08 PIT 5.2 Corp. inc. tax 0.9 Capital inc. tax 1.1 VAT & Excises PIT = 6.2 Basic allow. 2.1 Prof. expenses 2.7 Expenses Financing Euromod EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 16/57

12 conclusion 1 reform is not revenue neutral certainly impacts the distributional analysis plan: design a revenue neutral scenario EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 17/57

13 3. Impact effects: distributional (1) /month by household by worker (individual) % 250 's/month (left axis) 200 % disp income (right axis) All All deciles of individuals ranked by household equivalised income quintiles of workers ranked by gross hourly wage EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 18/57

14 3. Impact effects: distributional (2) 60% 50% share of employees share of retired 40% 30% 20% 10% 0% All quintiles of gains in /month (ranked in increasing order) EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 19/57

15 conclusion 2 reform is focussed on working population lower part progressive for subpopulation of working pop. regressive for whole population is without financing side: indirect taxes extension 1 EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 20/57

16 4. EM+ : including indirect taxes ongoing JRC project pilot version, preliminary SILC income allocated over 16 broad categories of expenditures (+ savings) for which consumer prices determined, based on rates of VAT excise duties constant producer prices EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 21/57

17 4. EM+ or: including indirect taxes macro validation: only VAT + excises paid by household sector dependent on coverage by expenditure survey EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 22/57

18 4. EM+ macro validation expenditures (mio ) National Accounts SILC Imputed Coverage (%) Food, non alcoholic beverages Alcoholic beverages Tobacco Clothing Housing, rents Private transport (car fuels) All expenditures EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 25/57

19 4. EM+: validation ind. tax vs PIT & SSC (bn ) National Accounts EM+ Ratio (%) Personal Income Tax Social Security Contributions Employees + Self Employed Employers Indirect Taxes VAT Excises EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 27/57

20 4. EM+ or: including indirect taxes result of change in indirect taxes: NBB/FPB in bn s 2.65 EUROMOD in bn s in s per month per household 17.7 gain of PIT and SSC (employee) EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 28/57

21 4. EM+ distributional effect indirect taxes /month 250 % of disp. inc Total effect PIT+SIC % PIT+SIC % Total IndTax All EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 29/57

22 4. EM+ distributional effect indirect taxes /month 250 % of disp. inc % PIT+SIC Total effect 0 PIT+SIC % Total IndTax All EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 30/57

23 conclusion 3 modelling of indirect taxes certainly relevant VAT: thé revenue source greening of tax shift increasing use of excise du es still challenges ahead:... uprating to National Accounts?... EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 31/57

24 5. EM++ including labour supply effects to take into account employment effects we use an estimated Labour Supply model type RURO (Dagsvik, Aaberge, Colombino,...) Random Utility Random Opportunity see EM WP 4/16: EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 32/57

25 6. EM++ including labour supply effects RURO, driven by preferences (disposable income, leisure) heterogeneous opportunities EUROMOD: crucial role in generating choice sets Model produces effect on Labour Supply cost recovery figures for the budget distributional analysis, possibly based on welfare metrics (beyond disposable income) EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 33/57

26 6. EM++ including labour supply effects we exploited EUROMOD + RURO in 5 scenario s: What has been implemented in the 5 scenario s? personal income tax RURO social security employees RURO Scenario social security employer w indirect taxes labour demand opp EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 39/57

27 6. EM++ including labour supply effects Scenario PIT, SSC_ee + Ind. Tax gross wages opp. Ind.Tax change in FTE s change in FTE s in % of basel initial cost of package (bn ) cost recovery (mio ) cost recovery in % EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 44/57

28 6. EM++ including labour supply effects Scenario PIT, SSC_ee + Ind. Tax gross wages opp. Ind.Tax cost recovery in mio PIT SSC Benefits Indirect Taxes EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 48/57

29 6. EM++ including labour supply effects Analysis for scenario 3 total volume of labour supply with 3.2% par cipa on rate from 82.0% to 84.8% mainly at bottom of income and wage distribution number of hours worked with 3.2% but important income effect for higher wages/incomes average # hours worked: from 30.3 to 31.3 conditional on part. baseline: with 0.4 mainly in higher wage classes: e.g. wage class [30 35]: from 42.4 h/w to 39.5 h/w ( of 6.5%) EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 49/57

30 conclusion 4 SSC_er & demand side: succesfully linked to EM employment effects: yes but limited with (unexpected?) effect on revenues? do the employment effects also affect the distributional analysis?!! analysis now still limited to the simulated population available for the labour market EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 50/57

31 6. Distributional analysis with and without LS /month impact effect without LS change in real disposable income in 's/month effect including LS All All deciles of individuals ranked by individual disposable income EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 51/57

32 6. Distributional analysis: disp_y vs Rente crit. change in Disposable Income change in welfare metric /month % 's/month (left axis) 300 % disp income (right axis) All All deciles of individuals ranked by individual disposable income EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 52/57

33 6. difference in ordering on income vs welfare EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 54/57

34 6. Distributional analysis: ranked on Rente crit. change in Disposable Income change in welfare metric /month % 's/month (left axis) 300 % (right axis) All All deciles of individuals ranked by individual disposable income individual welfare metric EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 55/57

35 conclusion 6 yes, employment effect important for distrib. anal. for subpopulation: becomes progressive change in leisure use welfare metric still progressive difference between leisure and involuntary unempl. EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 56/57

36 work ahead the coming 2(0) years welfare metric: include random term (poster) experiment further with the opportunity side integrate analysis of LS on modelled subpopulation with effects of tax reform for rest of population fine tune indirect taxes in EUROMOD EUROMOD 20 th Anniversary Conference Essex Sept Decoster et al. : Versatility of EUROMOD to assess Belgian tax shift 57/57