Abstract
We use a massive synthetic data set representative of the universe of taxpayers in Belgium to assess workers’ behaviour in response to four reform scenarios that entail marginal changes in the Personal Income Tax (PIT). We employ a novel tool for fiscal policy simulation, the Belgian arithmetic microsimulation model (Beamm), to derive individuals’ disposable income after the PIT and examine inequality and welfare indicators. A Random Utility Random Opportunity (RURO) model is estimated to calculate labour supply adjustments to modifications in the tax structure. We find that all the reforms considered are effectively inequality neutral and yield welfare changes of small magnitude, with only two reforms generating a welfare improvement. From a behavioural perspective, workers seem to be more sensitive to adjustments of marginal tax rates, as opposed to the restructuring of income tax brackets.