Abstract
We use representative data on 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 affect primarily the net tax revenue and the labour supply, while they remain effectively inequality neutral. Only two reforms generate a welfare improvement. From a behavioural perspective, workers seem to be more sensitive to tax increases, as opposed to tax cuts.