Family Labor Supply and Proposed Tax Reforms in the Netherlands1

This paper presents a discrete choice static neo-classical labor supply model for married or cohabiting couples in the Netherlands. The model simultaneously explains the participation decision and the desired number of hours worked. Due to its discrete nature, institutional details of the tax system can be fully incorporated. The model is estimated using Dutch cross-section data. The results are used to simulate the first order labor supply effects of proposed reforms of the Dutch income tax system. In particular, it is shown that some of the proposed reforms would have a negative effect on the number of married females who prefer a small part-time job. This pitfall is avoided in the final proposal which has gone to parliament. 1 Please address correspondence to: Arthur van Soest, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, The Netherlands; e-mail [email protected]. We are grateful to Maarten Lindeboom and Adriaan Hoogendoorn for their help. Statistics Netherlands is acknowledged for providing the data.