Widowhood and tax pressure. The case of the Netherlands

  • Ilse Munnikhof Ilse Munnikhof

This thesis describes the effect of the life event widowhood on net tax pressure, defined as the net taxes paid relative to the gross income earned. New panel data from the Income Panel Survey (IPO)of Statistics Netherlands (CBS) are used to analyse the effect of widowhood. IPO contains information from tax records for a sample of 38,000 individuals during the period 2006-2009. These tax data were matched with information from the population register on age, gender, marital status and household composition. Using pooled OLS, fixed effects and first differencing regression models, I find that widowhood has a negative effect on tax pressure, which is followed by an increase in tax pressure the following year, when keeping gross household income constant. This increase is likely to be caused by a decrease in tax relief that previously was obtained by subtracting the tax allowances from the highest income. I find a positive difference between late and early widowhood, which is likely to be caused by the single parent tax rebate that favours young widows. This tax rebate and the additional single parent tax rebate do not seem to improve the situation of households with (under aged) children. Child allowance on the other hand does not seem to worsenthe situation either. Finally, I find an unexpected difference in tax pressure after widowhood between men and women, which cannot be explained by the fact that most men are principal breadwinner.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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