Recent reforms of the tax and benefit systems in the framework of flexicurity : February 2009

This paper provides an analysis of recent reforms of tax-benefit systems and a preliminary assessment of their impact on financial incentives to work and on labour supply. Many Member States have introduced policies to "make work pay" and have targeted low-wage workers with the aim of increasing their takehome pay. The labour market improvements observed over recent years are a sign that structural reforms have started to pay off. The reduction of disincentives to work and to hire, especially for the low-skilled, embedded in tax and benefit systems, a greater link with activation policies and a stronger reliance on preventive and targeted active labour market policies (ALMPs), and widespread wage moderation are all factors that have contributed to the structural improvement in the functioning of labour markets. Yet, despite these improvements, in view of the ageing of the population and rapid technological change, more progress is needed to further increase and maintain high levels of employment and participation rates, especially among female and older workers, and to reduce structural unemployment