1. Taxes and benefits
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Tax and Benefit Policies to Reduce Poverty in the Netherlands: A Microsimulation Analysis

  1. Benedikt Goderis  Is a corresponding author
  2. Marente Vlekke  Is a corresponding author
  1. The Netherlands Institute for Social Research (SCP), The Netherlands
  2. CPB Netherlands Bureau for Economic Policy Analysis, The Netherlands
Research article
Volume 16(1) Spring 2023
Cite this article as: B. Goderis, M. Vlekke; 2023; Tax and Benefit Policies to Reduce Poverty in the Netherlands: A Microsimulation Analysis; International Journal of Microsimulation; 16(1); 108-133. doi: 10.34196/ijm.00277
1 figure and 14 tables

Figures

Figure 1
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Net effective marginal income tax rates in the Netherlands in 2022.. Note: Figure 1 shows the average net effective marginal income tax rates (solid line) and the corresponding 5th and 95th percentiles (dotted lines), all expressed as percentages, for gross individual incomes between € 0 and € 150,000.Sources: CPB calculations based on the MIMOSI microsimulation model.

Tables

Table 1
Stylized overview of the Dutch system of taxes and benefits
Gross wages+
Gross profits+
Gross benefits+
Gross pensions+
(Assumed) gross income derived from wealth*+
(Assumed) income derived from home ownership†+
Gross income
Taxes-
Income tax credits+
Fiscal effect of tax deductions+
Net income
Allowances+
Various individual allowances and compensation schemes+
Disposable income
  1. *

    Income derived from financial wealth is not taxed directly. Instead, the tax authority makes assumptions about the amount of income derived from the total amount of net household wealth.

  2. †

    Home ownership is taxed indirectly by assuming that one derives income from owning a home (‘eigenwoningforfait’).

Table 2
The basic needs and modest-but-adequate budgets for a single person in 2017 (monthly amounts in euro)
Minimum necessitiesAdditional expenses for social participation and recreation
Rent*443Additional contributions and subscriptions18.5
Gas60Receive visitors19.5
Electricity20To visit family and friends5.5
Water9Holiday/going out39
Telephone, television and internet54Additional transportation13.5
Insurance†45
Contributions and subscriptions2
Transportation14
Clothing and shoes56
Inventory74
Maintenance home and garden24
Food201
Laundry and cleaning supplies6
Personal care21
Miscellaneous10
Total minimum necessities1039Total social participation and recreation96

  1. Source: Vrooman et al. (2020).

  2. *

    This amount is obtained by estimating the average rent of a reference home.

  3. †

    Mandatory health insurance is excluded because its costs are deducted from income.

Table 3
Planned policies of previous and current governments
1: The lower threshold of the higher bracket of the Box 1 income tax will be raised from 2025 onwards.
2: The minimum income benefit is gradually reduced because the double tax credit that is applied to the reference minimum wage – this is the net amount a couple would end up with in the hypothetical case that one of them would receive a gross benefit equal to the statutory gross minimum wage, while the other would have no income - on which the minimum income benefit is based is gradually phased out.
3: The transferability of the general tax credit, the in-work tax credit, and the in-work tax credit for single parents and second earners in couples with children will be abolished.
4: The imputed income from homeownership will be reduced by 0.05%.
5: The deduction for zero (or very low) home acquisition debt (‘wet Hillen’) will be abolished.
6: The reduction percentage of the health care allowance will be further increased.
7: The lower threshold of the second bracket of the Box 1 income tax for pensioners will be indexed to a limited extent (75%) for people born after 1945.
8: The pension agreement of 2020 will lead to a 0.3% reduction in pensions by 2060 (after 2060 it will further lower pensions but this period is excluded from our analysis).
9: The tax credit for the self-employed will not be indexed.
10: The maximum rate for tax deductions will be further reduced to the lower tariff in the two-bracket system of income tax over the period until 2023.
11: The mortgage redemption requirement to be eligible for mortgage interest deduction will be gradually increased over the period until 2042.
Table 4
Simulated effects of various individual policy options§
Policy optionsEx-ante budgetary effect € bnPoverty in persons %Poverty in euros %Poverty in persons
(within group) %		Poverty in euros
(within group) %		Employment %Income inequality %
I. Policies aimed at children
1: Raise child budget from third child onwards
2: Raise child budget for single parents
3: Raise child budget, combination of 1 and 2
4: Make in−work tax credit for second earners/single parents refundable		−0.2
−0.1
−0.3
−0.1		−2.5
−0.9
−3.5
−0.1		−1.1
−0.4
−1.5
−0.1		−7.2
−2.3
−9.9
−0.3		−3.4
−1.3
−4.6
−0.2		0.0
0.0
0.0
0.0		−0.1
−0.1
−0.1
0.0
II. Policies aimed at the working age population
5: Make in−work tax credit refundable
6: Raise in−work tax credit for low incomes
7: In−work tax credit, combination of 5 and 6
8: Raise minimum income benefit to state pension level
9: Reverse reduction in minimum income benefit after 2021
10: Raise minimum income benefit to 70% of reference minimum wage per hh member		−0.3
−1.2
−2.5
−1.4 (−2.9*)
−0.9 (−1.9*)
−1.8 (−3.7*)		−0.8
−3.1
−6.3
−20.0
−16.7
−10.7		−0.8
−1.7
−4.7
−8.8
−7.3
−4.3		−1.1†
−8.8†
−14.0†
−57.0†
−48.0†
−27.3†		−1.1†
−4.5†
−9.3†
−57.1†
−48.3†
−21.3†		0.0
−0.1‡
−0.2‡
−0.9‡
−0.6‡
−1.2‡		−0.1
−0.4
−0.7
−0.9
−0.6
−0.5
III. Policies aimed at the elderly
11: Make tax credit for retirees refundable
12: Raise healthcare allowance for the elderly only by € 0.3 bn
13: Raise the tax deductibility of healthcare costs for the elderly only by € 0.3 bn		−0.8
−0.3
−0.3		−1.7
−0.4
−0.2		−2.2
−0.5
−0.1		−10.0
−2.8
−1.6		−14.6
−4.0
−1.1		.
.
.		−0.4
−0.2
−0.1
IV. General policies
14: Make general tax credit refundable
15: Make general tax credit refundable and raise it by € 0.5 bn
16: Raise the tax deductibility of healthcare costs by € 0.3 bn		−4.8
−5.5
−0.3		−16.0
−17.5
−0.9		−19.1
−20.1
−0.5		.
.
.		.
.
.		−0.8‡
−0.8‡
.		−1.1
−1.3
−0.1

  1. Note: The reported effects document the changes relative to the structural baseline scenario (counterfactual), which assumes that all policies currently being gradually phased in are fully implemented but no additional policy changes occur.

  2. *

    The amounts between brackets show the total ex-ante effect when taking into account behavioural responses.

  3. †

    For the policies 5 to 10, the relevant group corresponds to a subcategory of the working age population, in particular workers (policies 5 to 7) or recipients of minimum income benefit (policies 8 to 10).

  4. ‡

    Negative employment effects have an (unquantified) upward effect on poverty.

  5. §

    Table A1 in the appendix presents the results for the AROP threshold.

Table 5
Simulated effects of selected individual policy options with an imposed budgetary impact of € 1.0 bn§
Policy optionsEx-ante budgetary effect € bnPoverty in persons %Poverty in euros %Poverty in persons
(within group) %		Poverty in euros
(within group) %		Employment %Income inequality %
I. Policies aimed at children
1: Raise child budget from third child onwards and further increase it for each child
2: Raise child allowance		−1.0
−1.0		−7.3
−4.2		−3.3
−2.1		−19.8
−10.9		−10.2
−6.4		−0.2‡
−0.1‡		−0.4
−0.2
II. Policies aimed at the working age population
3: Raise in−work tax credit
4: Raise minimum income benefit		−1.0
−1.0 (−2.0*)		−0.6
−17.9		−0.2
−7.9		−1.9†
−55.7†		−0.7†
−55.9†		0.1
−0.7‡		0.0
−0.7
III. Policies aimed at the elderly
5: Make tax credit for retirees refundable and raise it
6: Raise healthcare allowance for the elderly only		−1.0
−1.0		−1.8
−1.9		−2.4
−2.0		−10.9
−15.3		−16.0
−14.5		.
.		−0.5
−0.9
IV. General policies
7: Raise rent allowance
8: Raise healthcare allowance
9: Raise general tax credit		−1.0
−1.0
−1.0		−11.2
−5.6
−2.0		−7.8
−4.7
−1.3		.
.
.		.
.
.		−0.1‡
−0.1‡
0.0		−1.1
−0.7
−0.3

  1. Note: The reported effects document the changes relative to the structural baseline scenario (counterfactual), which assumes that all policies currently being gradually phased in are fully implemented but no additional policy changes occur.

  2. *

    The amount between brackets shows the total ex-ante effect when taking into account behavioural responses.

  3. †

    For the policies 3 and 4, the relevant group corresponds to a subcategory of the working age population, in particular workers (policy 3) or recipients of minimum income benefit (policy 4).

  4. ‡

    Negative employment effects have an (unquantified) upward effect on poverty.

  5. §

    Table A2 in the appendix presents the result for the AROP threshold.

Table 6
Basic income scenarios
BaselineScenario 1Scenario 2
UBIEuros per month
Per adult0560635
Per household0500600
Total single adult household010601235
Total per adult in a couple0810935
UBIEuros per year
Total single adult household012,72214,822
Total per adult in a couple09,72211,222
Benefits
Minimum income scheme (‘bijstand’)maintainedabolishedabolished
Disability benefits for young people (‘Wajong’)maintainedabolishedabolished
Public pension (‘AOW’) and benefits for widows/widowers (‘Anw’)maintainednetted with UBIabolished
Unemployment and disability benefits (‘WW’, ‘ZW’ and ‘WIA’)maintainednetted with UBInetted with UBI
Taxes, tax deductions and tax credits
Tariff first bracket Box 137.1%52.7%56.5%
Tariff second bracket Box 149.5%70.4%75.4%
Income tax creditsmaintainedabolishedabolished
Tax on imputed income from homeownership (‘eigenwoningforfait’)maintainedabolishedabolished
Mortgage interest rate tax deduction (‘hypotheekrenteaftrek’)maintainedabolishedabolished
Allowances
Rent allowance (‘huurtoeslag’)maintainedmaintainedmaintained
Child allowance (‘kinderbijslag’)maintainedmaintainedincreased to 300 euros per child per month
Child budget (‘kindgebonden budget’)maintainedmaintainedabolished
Child care allowance (‘kinderopvangtoeslag’)maintainedmaintainedabolished
Healthcare allowance (‘zorgtoeslag’)maintainedmaintainedabolished
Study subsidies (‘studiefinanciering’)maintainedabolishedabolished

  1. Note: Due to rounding, the annual UBI amounts do not exactly correspond to 12 times the monthly amount.

Table 7
Simulated effects of larger reforms†
Poverty in personsPoverty in eurosEmploymentIncome inequality
%%%%
Universal Basic Income
Scenario 1−45.3−62.4−6.4*−10.0
Scenario 2−60.5−62.3−8.3*−11.7
Negative income tax−14.8−19.3−0.9*−2.1
Unified allowance11.013.10.6−0.7

  1. Note: The reported effects document the changes relative to the structural baseline scenario (counterfactual), which assumes that all policies currently being gradually phased in are fully implemented but no additional policy changes occur.

  2. *

    Negative employment effects have an (unquantified) upward effect on poverty.

  3. †

    Table A3 in the appendix presents the result for the AROP threshold.

Table 8
Boxplots of the percentage change in household disposable income for different household groups in UBI scenario 1
Distribution of effect on disposable income
5%25%50% (median effect)75%95%
% change
All households−18.4−8.3−1.57.231.4
Income percentiles
1-20%−19.2−12.5718.551.7
21-40%−8.9−3.43.1933.6
40-60%−12.2−4.104.325
61-80%−15.5−8.5−4.41.719.9
81-100%−22.4−12.9−8.1−112.5
Income source
Employment−16.4−7.6−0.48.831.4
Benefits−29.9−5.96.410.536
Pension−19.1−10.9−4.70.725.3
Household type
Dual earners−18.1−9.5−51.522.4
Single earners−18.8−6.11.68.531.8
Single-earner couples−5.21120.232.661.1
With/without children
With children−19.2−11.3−4.96.730
Without children−15.8−5.61.51033.5
Table 9
Boxplots of the percentage change in household disposable income for different household groups in UBI scenario 2
Distribution of effect on disposable income
5%25%50% (median effect)75%95%
% change
All households−19.6−9.3−1.99.733.4
Income percentiles
1−20%−14.8−10.68.619.654.3
21−40%−14.2−6.91.910.735
40−60%−14.5−5.80.4629.4
61−80%−18.6−8.5−3.84.423.9
81−100%−27.5−14.5−8.5014.8
Income source
Employment−20.5−7.211134.6
Benefits−30.2−4.710.71541.6
Pension−16.1−11.6−8.1−3.321.2
Household type
Dual earners−22−10.2−53.725.4
Single earners−16.5−8.60.51133.7
Single−earner couples−5.913.623.833.464.3
With/without children
With children−27.6−11.3−2.110.135.4
Without children−17.1−5.8312.435.9
Table 10
Boxplots of the percentage change in household disposable income for different household groups in the negative income tax scenario
Distribution of effect on disposable income
5%25%50% (median effect)75%95%
% change
All households−2.1−1.7−1.50.47.5
Income percentiles
1−20%−1.6−1.5−1.20.712.8
21−40%−1.8−1.6−1.41.58.9
40−60%−2−1.7−1.50.56.9
61−80%−2.1−1.8−1.6−0.15
81−100%−2.6−2−1.8−0.52.9
Income source
Employment−2.2−1.8−1.5−0.47.1
Benefits−2.1−1.6−1.5−111
Pension−1.9−1.5−1.21.17.3
Household type
Dual earners−2.2−1.8−1.41.16.5
Single earners−2.1−1.8−1.5−1.23.7
Single-earner couples13.86.49.617.1
With/without children
With children−2.2−1.6−0.92.99.8
Without children−2.2−1.8−1.6−1.35.8
Table 11
Boxplots of the percentage change in household disposable income for different household groups in the unified allowance scenario
Distribution of effect on disposable income
5%25%50% (median effect)75%95%
% change
All households−5.5−0.4−0.1−0.19.2
Income percentiles
1−20%−14.3−4.1−0.3413.4
21−40%−3.6−1−0.16.910.9
40−60%−4−0.1−0.1−0.14.8
61−80%−2.4−0.2−0.1−0.1−0.1
81−100%−0.5−0.2−0.1−0.1−0.1
Income source
Employment−3.9−0.2−0.1−0.18.3
Benefits−15.9−5.2−0.31.49.9
Pension−5.1−0.4−0.12.810.1
Household type
Dual earners−3.3−0.2−0.1−0.13.3
Single earners−8.3−0.5−0.14.311.3
Single−earner couples−5.8−1.5−0.1−0.15.9
With/without children
With children−6.8−2.2−0.2−0.11.6
Without children−4.3−0.2−0.1−0.19.7
Table A1
Simulated effects of various individual policy options, poverty threshold equals 60% of median net disposable income
Policy optionsPoverty in persons %Poverty in euros %Poverty in persons (within group) %Poverty in euros (within group) %
I. Policies aimed at children
1: Raise child budget from third child onwards−1.3−1.0−3.7−3.2
2: Raise child budget for single parents−0.5−0.5−1.2−1.7
3: Raise child budget, combination of 1 and 2−1.9−1.6−5.1−4.9
4: Make in−work tax credit for second earners/single parents refundable−0.1−0.1−0.4−0.2
II. Policies aimed at the working age population
5: Make in−work tax credit refundable−0.6−0.7−0.8*−0.9*
6: Raise in−work tax credit for low incomes−3.0−2.4−7.7*−7.0*
7: In−work tax credit, combination of 5 and 6−5.4−5.1−11.8*−11.4*
8: Raise minimum income benefit to state pension level−4.6−11.0−9.9*−44.2*
9: Reverse reduction in minimum income benefit after 2021−2.3−7.7−5.2*−30.6*
10: Raise minimum income benefit to 70% of reference minimum wage per hh member−7.9−5.2−24.0*−18.8*
III. Policies aimed at the elderly
11: Make tax credit for retirees refundable−2.0−2.1−12.4−12.8
12: Raise healthcare allowance for the elderly only by € 0.3 bn−1.0−0.6−6.6−4.5
13: Raise the tax deductibility of healthcare costs for the elderly only by € 0.3 bn−0.4−0.2−2.8−1.6
IV. General policies
14: Make general tax credit refundable−13.7−16.3..
15: Make general tax credit refundable and raise it by € 0.5 bn−14.5−17.3..
16: Raise the tax deductibility of healthcare costs by € 0.3 bn−0.5−0.5..

  1. Note: The reported effects document the changes relative to the structural baseline scenario (counterfactual), which assumes that all policies currently being gradually phased in are fully implemented but no additional policy changes occur.

  2. *

    For the policies 5 to 10, the relevant group corresponds to a subcategory of the working age population, in particular workers (policies 5 to 7) or recipients of minimum income benefit (policies 8 to 10).

Table A2
Simulated effects of selected individual policy options with an imposed budgetary impact of € 1.0 bn, poverty threshold equals 60% of median net disposable income
Policy optionsPoverty in persons %Poverty in euros %Poverty in persons
(within group) %		Poverty in euros
(within group) %
I. Policies aimed at children
1: Raise child budget from third child onwards and further increase it for each child−4.1−3.5−9.8−11.1
2: Raise child allowance−1.3−1.1−2.9−3.5
II. Policies aimed at the working age population
3: Raise in−work tax credit−0.4−0.3−1.3*−1.0*
4: Raise minimum income benefit−6.9−4.4−13.8*−10.1*
III. Policies aimed at the elderly
5: Make tax credit for retirees refundable and raise it−2.4−2.3−14.4−14.2
6: Raise healthcare allowance for the elderly only−2.8−2.3−18.3−16.0
IV. General policies
7: Raise rent allowance−5.3−7.9..
8: Raise healthcare allowance−3.5−4.4..
9: Raise general tax credit−1.4−1.4..

  1. Note: The reported effects document the changes relative to the structural baseline scenario (counterfactual), which assumes that all policies currently being gradually phased in are fully implemented but no additional policy changes occur.

  2. *

    For the policies 3 and 4, the relevant group corresponds to a subcategory of the working age population, in particular workers (policy 3) or recipients of minimum income benefit (policy 4).

Table A3
Simulated effects of larger reforms, poverty threshold equals 60% of median net disposable income
Poverty in personsPoverty in euros
%%
Universal Basic Income
Scenario 1−28.3−48.4
Scenario 2−26.1−52.9
Negative income tax−14.1−16.1
Unified allowance5.110.4

  1. Note: The reported effects document the changes relative to the structural baseline scenario (counterfactual), which assumes that all policies currently being gradually phased in are fully implemented but no additional policy changes occur.

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