In-work tax credits in Belgium: an analysis of the Jobkorting using a discrete labour supply model
The Flemish government implemented in 2007 an in-work tax credit in order to increase the employment rate and to make working financially more attractive. This paper investigates how total labour supply changes and checks if the cost reductions due to these behavioral reactions are large enough to defend such expensive policies. It appears that married women alter their labour supply decision the most. However, due to the small tax credit, total labour supply effects are of minor size and hardly offset the large costs. Only a more generous tax credit leads to a higher activations of inactive people, however the budgetary cost is huge.