The distributional effects of tax-benefit policies : A reduced form approach with application to Finland

Abstract

In this study we describe a procedure to account for behavioral effects in the evaluation of distributional effects of tax-benefit policy changes. Instead of applying a separate behavioral simulation module, we demonstrate how exogenously given behavioral estimates can be employed in the descriptions of distributional analysis. By employing elasticity estimates from relevant literature, behavioral effects on household incomes are assessed both on the intensive and the extensive margin. The method is demonstrated with the Finnish tax-benefit changes that came into force at the beginning of 2020.