TAXATION AND EMPLOYMENT

This paper analyzes the relation between employment and the tax system by means of an applied general equilibrium model for the Netherlands. Out of five ways to reduce tax incidence, lowering the tax rate in th e first income tax bracket is most effective in raising employment. A rise in a supplementary income tax allowance for workers leads to the largest fall in unemployment and a fall in the value added tax rate is most effective in reducing inflation. The smallest employment effects arise from a rise in the general basic allowance for income taxes.