Transcript LIAM2 status report

Federal
Planning Bureau
Economic analyses and forecasts
The gross-net trajectory in
MIDAS_BE
Some work in progress
Jean-Charles Wijnandts1 , Gijs Dekkers2 and
Raphaël Desmet3
1. University of Liège (student internship at the FPB)
2. Federal Planning Bureau and Katholieke Universiteit Leuven
3. Federal Planning Bureau
Paper presented at the Ministero dell'Economia e delle Finanze, Rome,
February 15th, 2011
Federal Planning Bureau
Economic analyses and forecasts
The gross-net trajectory in MIDAS_BE:
some work in progress
 Overview of this presentation
 What is the relevance of taking into
account taxes and social contributions?
 The system of taxes and contributions in
Belgium
 A comparison of gross and net
simulation results
Federal Planning Bureau
Economic analyses and forecasts
The gross-net trajectory in MIDAS_BE:
some work in progress
 Overview of this presentation
 What is the relevance of taking into
account taxes and social contributions?
 The system of taxes and contributions in
Belgium
 A comparison of gross and net
simulation results
Federal Planning Bureau
Economic analyses and forecasts
The gross-net trajectory in MIDAS_BE:
some work in progress

1) The system of taxes and social contributions redistributes
income
 Progressivity of taxes: increasing marginal tax rates
 Deductions for replacement incomes and such.

2) Ultimately, the indirect measurement of inequality and poverty
is about approaching welfare. Net income is more relevant for
consumption possibilities than gross income, hence the stronger
conceptual link with welfare.

Policy measures pertaining to the system of taxes and social
contributions affect poverty and redistribution via the fiscal
system.
Federal Planning Bureau
Economic analyses and forecasts
The gross-net trajectory in MIDAS_BE:
some work in progress
 Overview of this presentation
 What is the relevance of taking into
account taxes and social contributions?
 The system of taxes and contributions in
Belgium
 A comparison of gross and net
simulation results
Federal Planning Bureau
Economic analyses and forecasts
The gross-net trajectory in MIDAS_BE:
some work in progress

1)
Deduction of professional costs:

2) Computation of taxable income, i.e. earnings minus social
security contributions and deductible professional costs (when
applicable)

3) Determination of marriage coefficient: this coefficient applies
when one of the partners’ taxable incomes is lower than 30% of
the household’s taxable total income.
 determine the income source for the donating partner (mquot=2)
when the marriage coefficient applies
 associate the income source of the donating partner to the receiver
(mquot=1)
 determine the amount to be added to income poor partner.
 The marriage coefficient amount is added to the income of the poor
partner, with respect to the income source of the donating partner
Federal Planning Bureau
Economic analyses and forecasts
The gross-net trajectory in MIDAS_BE:
some work in progress
 Subtract the same amount from the income of the rich partner

Determine taxable income after application of the marriage
coefficient

Compute deductions

Compute tax amounts
 Determine reduction for old-age pension benefits and disability
benefits
 Apply horizontal limitation, vertical limitation, proportionality limitation
 Apply deduction for replacement incomes

Apply a minimum taxable income

Compute after-tax income
Federal Planning Bureau
Economic analyses and forecasts
The gross-net trajectory in MIDAS_BE:
some work in progress
 Overview of this presentation
 What is the relevance of taking into
account taxes and social contributions?
 The system of taxes and contributions in
Belgium
 A comparison of gross and net
simulation results
Federal Planning Bureau
Economic analyses and forecasts
The gross-net trajectory in MIDAS_BE:
some work in progress
Gross and net annual wage, prices of 2002, in euro
14000
9000
13000
Gross and net annual unemployment benefits, prices of 2002, in euro
8500
2010
year
2020
Net work income
2010
2015
year
9000
Gross retirement benefit
8500
2005
7500
2000
2015
9500
Gross work income
2005
2000
2020
Net retirement benefit
2010
year
Gross CELS benefit
2005
8000
10000
2005
9000
2000
10000 10500
12000
Gross and net annual disability benefits, prices of 2002, in euro
8000
10500
2000
11000
12000
11500
12500
Gross and net annual conventional early leave benefits, prices of 2002, in euro
11000
18000
14000
16000
20000
22000
Gross and net annual retirement benefits, prices of 2002, in euro
2015
2020
Net CELS benefit
2010
year
2005
Gross2000
unemployment benefit
2015
2015
Net2010
unemployment benefit
year
Gross disability benefit
Federal Planning Bureau
Economic analyses and forecasts
2020
Net disability benefit
2020
The gross-net trajectory in MIDAS_BE:
some work in progress
.15
.2
.25
.3
Gini index by status
2000
2010
2020
2030
Year
Entire population GIS
W orkers Gross income Scenario
Retirees Gross income Scenario
2040
2050
2060
Entire population NIS
W orkers Net income scenario
Retirees Net income scenario
Source: MIDAS
The main conclusion is that inequality of net incomes is consistency lower than of gross
figures, reflecting the redistributive impact of the system of taxes and social security
contributions.
Federal Planning Bureau
Economic analyses and forecasts
The gross-net trajectory in MIDAS_BE:
some work in progress
0
5
10
15
20
Risk of poverty rate, in percent
2000
2010
2020
2030
Year
Entire population Gross income
W orkers Gross income
Retirees Gross income
2040
2050
2060
Entire population Net income
W orkers Net income
Retirees Net income
Source: MIDAS
•The marginal tax rate for pensioners is lower than for workers, and –in relative termsexpressing income in net instead of gross terms is beneficiary to pensioners relative to
workers.
•The poverty risk of pensioners decreases and – hence - the poverty risk of workers
increases. On the whole, however, due to the reduction in inequality, the risk of poverty
of the population as a whole decreases.
Federal Planning Bureau
Economic analyses and forecasts
Conclusions

Expressing the adequacy of social security benefits conceptually
reinforces the relation between income and welfare

It also expands the model in assessment of fiscal policy

Including the system of taxes and social contributions reduces
income inequality

Including the system of taxes and social contributions reduces
poverty among pension recipients, and increases the poverty risk
of earning recipients.

Due to the lower income inequality, especially on the low end of
the income distribution, the overall poverty risk increases.
Federal Planning Bureau
Economic analyses and forecasts