Effective average and marginal tax rates in the Belgian tax benefit system

Decoster, A., De Swerdt, K., Van Camp G. (2010). Effective average and marginal tax rates in the Belgian tax benefit system, Final Report (Part 1) of the project “Belasting op arbeid en mogelijke arbeidsaanbodreacties” funded by FPS Social Security Leuven, KULeuven CES, 1-59pp.

Macro-economic calculations and international comparisons have shown that Belgium is amongst the countries with the highest tax burden. Such macro-economic numbers, however, neglect to some extent the many complexities that are often characteristic of tax- benefit systems, especially a rather complex one such as the Belgian system. To analyze in depth the tax benefit system in its full complexity, this report relies on the microsimulation methodology.
By means of the microsimulation model MIMOSIS, running on a large administrative dataset, we calculate and simulate taxes, social security contributions and disposable incomes for a large representative sample of the population. In this respect the current report can be seen as a complement to the yearly OECD publication “Taxing Wages” where a limited number of household typologies are studied on hypothetical data and quantifying only the incentive to supply more hours.
We sketch a detailed picture of the current tax burden on labour, implicit in the Belgian tax benefit system. In the simulation part we calculate counterfactual taxes, social contributions and disposable incomes, for a range of working hours. This allows investigating the incentive structure of the current system, taking into account interactions between benefits received, means testing, or progressivity of the rates in the personal income tax system. We look at both the incentive to participate in the labour market as the incentive to supply more hours.