Analyzing fiscal policy in the Netherlands: simulations with a revised MIMIC

Compared to its predecessor, the new MIMIC model contains several new elements, such as endogenous labor supply of breadwinners and single persons, an informal economy, endogenous formation of human capital, and a distinction between short- and long-term unemployment. The MIMIC model thus better incorporates the economic impacts of high marginal tax rates and is able to analyze a broader set of policy proposals. In particular, we explore the economic effects of tax proposals that currently receive much attention in the Dutch policy debate, including lower marginal tax rates, across-the-board cuts in social premiums paid by employers, reductions in these premiums targeted at the unskilled, vouchers for the long-term unemployed, and various forms of earned-income tax credits.