Marginal Personal Income Tax Changes: Tax Revenue, Welfare, and Labour Supply Responses

We use a massive synthetic data set representative of the universe of taxpayers in Belgium to assess workers’ behaviour in response to 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’s adjustments to modifications in the tax structure.