In-Work Tax Credits in Belgium :An Analysis of the Jobkorting Using a Discrete Labour Supply Model

The Flemish government implemented in 2007 an in-work tax credit in order to increase theemployment rate and to make working financially more attractive. This paper investigates howtotal labour supply changes and checks if the cost reductions due to these behavioral reactionsare large enough to defend such expensive policies. It appears that married women alter theirlabour supply decision the most. However, due to the small tax credit, total labour supplyeffects are of minor size and hardly offset the large costs. Only a more generous tax credit leadsto a higher activations of inactive people, however the budgetary cost is huge.