The Fiscal Effects of Work-related Tax Expenditures in Europe

This article examines the fiscal impact, and the associated welfare cost, of marginal reforms to work-related tax relief in five European countries. We combine a model of labor supply with microsimulation results to capture the interaction between the specific tax incentive and other provisions of the tax-benefit system along the entire earnings distribution. We find that changes in labor supply decisions—both at the extensive and at the...