Personal income tax reform in Belgium : The short-, medium-and long-run impact on wages, employment and value added re-examined by LABMOD [ Working Paper 11-04 - 09/05/2004]

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The impact of the current personal income tax reform on wages, value added and production is assessed. When fully implemented and all feedback on the goods and factor markets is accounted for, the 2001 fiscal reform and the removal of the crisis surcharge tax will cut the personal income tax rate by 3.1 percentage points and the market-sector real wage by 1.7%-2.6%.

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Authors

Peter Stockman (A)

A : Author, C : Contributor

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Working Papers

The Working Paper presents a study or analysis conducted by the Federal Planning Bureau on its own initiative.

The fiscal reform will raise the market sector real take-home wage by 1.5%-2.7%, market sector employment by 2.4%-3.5% and market sector real value added by 1.6%-2.2%. In the long run, the fiscal reform will raise the shares of the take-home wage bill and the net cash-flow before taxes by 0.9 and 0.6 percentage points in one scenario whereas another scenario predicts share increases by 0.7 and 0.9 percentage points. During transition, the effects will be more modest because of both the delayed impact on wages and the gradual nature of the tax cut. However, by 2004 the successive nominal wage cuts will sum up to a slowdown in wage growth by 2.2%-2.3% over 2001-2004, i.e. 0.5 percentage points each year.

Due to the fiscal reform, employment is expected to be raised by the fiscal reform by 24,000 units in 2004, 34,000-36,000 units in 2007 and by 59,000-86,000 units in the very long run. These figures probably understate the true impact on employment.