In this project, the existing system of models, PACE, will be further developed. The aim is to analyse the effects of taxation and social security contributions on the level and the structure of unemployment. The focus will be on allocative and distributive effects of the following policies: general tax cuts, tax schedule modifications, ecological tax reform, a cut in social security contributions, wage subsidies, alternative financing of social security systems. The detailed model of the labour market will feature heterogenous skill types of labour and differentiated households.