OECD Economic Surveys: Belgium 2009
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OECD Economic Surveys: Belgium 2009

This 2009 edition of OECD's periodic survey of Belgium explores how Belgium should cope with the economic crisis and includes chapters on securing fiscal sustainability, improving fiscal federalism, reforming the tax system, and promoting competition.
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How to reform the tax system to enhance economic growth You do not have access to this content

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OECD

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Individual elements in tax systems affect the growth process through different channels and to a varying degree. Consumption taxes are among the least distortive for growth, and there is considerable scope to increase the reliance on this tax source in Belgium. Differential taxation of saving vehicles distorts investment decisions, hampering the reallocation of capital towards its most productive use. However, the most distortive taxes are on labour through their effects on workers’ labour market decisions. Recognising the latter, the Belgian authorities have aimed at reducing taxation on labour. However, its level remains internationally high, reflecting numerous exemptions, which reduce tax bases and thus require higher tax rates than otherwise. To promote labour market prospects for individual groups on the labour market, wage subsidies and social security contribution reductions have been used extensively, leading to a complex system, often poorly targeted and at times subject to conflicting objectives. The end result is that the interaction between the personal income tax, the social security contributions, and the generous benefit systems has created a multitude of labour market traps which hold back employment. New tax reforms are constrained by the large and growing fiscal sustainability problem, implying that, unless substantial expenditure cuts are implemented, new tax reforms must be self-financed. This can be achieved by shifting the reliance of the tax system towards the least distortive sources and by broadening tax bases to allow lower tax rates.
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