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Reducing the income tax burden for households with children: An assessment of the child tax credit reform in Austria

Author

Listed:
  • Varga, Janos
  • Christl, Michael
  • De Poli, Silvia
Abstract
This paper analyses the impact of the implementation of a child tax credit in Austria in 2019, both on micro and macro level. First, we assess the fiscal and distributional impact of this reform using EUROMOD. Second, we estimate labour supply impacts of the reform based on a structural discrete choice framework. Third, we evaluate the macroeconomic impacts, by calibrating and shocking the DSGE model QUEST, with the micro-based results. We show that the reform reduces inequality, lowers the poverty rate for households with children. Overall the reform has a positive impact on labour supply, especially for women. On the macro-level (and in the long-run), our model suggests a small but positive impact on employment, investment, consumption and GDP. Additionally, using the macro impact of the reform, we show that accounting for those behavioural responses at the micro level is important to asses the long-run impact of tax reforms, especially on the income distribution.

Suggested Citation

  • Varga, Janos & Christl, Michael & De Poli, Silvia, 2020. "Reducing the income tax burden for households with children: An assessment of the child tax credit reform in Austria," EUROMOD Working Papers EM1/20, EUROMOD at the Institute for Social and Economic Research.
    • Handle: RePEc:ese:emodwp:em1-20
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    Cited by:

    1. Ana Agúndez García & Michael Christl, 2023. "Hypothetical Tax-Benefit Reforms in Hungary: Shifting from Tax Relief to Cash Transfers for Family Support," Eastern European Economics, Taylor & Francis Journals, vol. 61(6), pages 723-746, November.
    2. Alexandri, Eva & Figari, Francesco & Longo, Enrico & Suta, Cornelia-Madalina, 2024. "A micro-macro approach for the evaluation of fiscal policies: The case of the Italian tax-benefit reform," Economic Modelling, Elsevier, vol. 135(C).
    3. Michael Christl & Silvia Poli, 2021. "Trapped in inactivity? Social assistance and labour supply in Austria," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(3), pages 661-696, August.
    4. Edlira Narazani & Ugo Colombino & Bianey Palma, 2023. "EUROLAB: A Multidimensional Labour Supply-Demand Model for EU Countries," International Journal of Microsimulation, International Microsimulation Association, vol. 16(3), pages 49-76.
    5. Ernst, Ekkehard & Merola, Rossana & Reljic, Jelena, 2024. "Fiscal policy instruments for inclusive labour markets: A review," GLO Discussion Paper Series 1406, Global Labor Organization (GLO).

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    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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