Labour tax and child benefits reform in Lithuania: for better or worse?

Authors

Aurelija Anciūtė, Viginta Ivaškaitė-Tamošiūnė, Anamaria Maftei, Janos Varga

Publication Date

Oct 2020

Summary

In 2019, Lithuania overhauled the country’s labour taxation. Social insurance contributions paid by employers and employees were consolidated, and were accompanied by adjustments in gross wages and personal income tax rates, and increases in the minimum gross wage and the tax-free allowance. Simultaneously, the government increased the universal child benefit and, to a limited extent, the additional child benefit. Simulations based on the EUROMOD and QUEST models are used to assess the fiscal, redistributive, equity and macroeconomic impact of these reforms. Overall, the set of simulated changes marginally decreases the tax wedge, poverty and income inequality. The child benefits reform has a progressive impact on household disposable income. In terms of public finances, the labour taxation reform is estimated to be costly, with a small stimulating effect on the economy.

DOI

https://doi.org/10.2765/600512

Publication type

Research Paper

Series Number

059

Links

https://ec.europa.eu/info/publications/labour-tax-and-child-benefits-reform-lithuania-better-or-worse_en

Cid:526445