Arbeitspapier
Beyond the Labour Income Tax Wedge: The Unemployment-Reducing Effect of Tax Progressivity
In this paper we argue that, for a given overall level of labour income taxation, a more progressive tax schedule increases employment. From a theoretical point of view, higher progressivity increases overall employment through a wage moderating effect and also because employment of low-paid workers is more elastic to wages. We test these theoretical predictions on a panel of 21 OECD countries over 1998-2008. Controlling for the burden of taxation at the average wage, our estimates suggest that a more progressive tax schedule reduces the unemployment rate and increases the employment rate. These findings are confirmed when we account for the potential endogeneity of both average taxation and progressivity. Overall, our results suggest that policy-makers should not only focus on the detrimental effects of tax progressivity on in-work effort, but also consider the employment-enhancing effects.
- Language
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Englisch
- Bibliographic citation
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Series: IZA Discussion Papers ; No. 8276
- Classification
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Wirtschaft
Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Taxation and Subsidies: Incidence
Mobility, Unemployment, and Vacancies: Public Policy
- Subject
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wage moderation
employment
taxation
- Event
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Geistige Schöpfung
- (who)
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Lehmann, Etienne
Lucifora, Claudio
Moriconi, Simone
Van der Linden, Bruno
- Event
-
Veröffentlichung
- (who)
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Institute for the Study of Labor (IZA)
- (where)
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Bonn
- (when)
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2014
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Lehmann, Etienne
- Lucifora, Claudio
- Moriconi, Simone
- Van der Linden, Bruno
- Institute for the Study of Labor (IZA)
Time of origin
- 2014
Other Objects (12)
Beyond the Labour Income Tax Wedge: The Unemployment-Reducing Effect of Tax Progressivity
Unemployment and tax design
Unemployment and Tax Design
Tax-Competition with Involuntary Unemployment
Tax policy and OECD unemployment
Ecological Tax Reform and Unemployment
Is there a social security tax wedge?
Is there a social security tax wedge?
Reducing unemployment through fundamental labour market reform
Reducing unemployment through fundamental labour market reform
Budget-neutral labour tax wedge reductions: A simulation-based analysis for selected euro area countries
Correction to: Unemployment and endogenous choice on tax instruments in a tax competition model: unit tax versus ad valorem tax
Beyond the Labour Income Tax Wedge: The Unemployment-Reducing Effect of Tax Progressivity
Unemployment and tax design
Unemployment and Tax Design
Tax-Competition with Involuntary Unemployment
Tax policy and OECD unemployment
Ecological Tax Reform and Unemployment
Is there a social security tax wedge?
Is there a social security tax wedge?
Reducing unemployment through fundamental labour market reform
Reducing unemployment through fundamental labour market reform
Budget-neutral labour tax wedge reductions: A simulation-based analysis for selected euro area countries
Correction to: Unemployment and endogenous choice on tax instruments in a tax competition model: unit tax versus ad valorem tax
Beyond the Labour Income Tax Wedge: The Unemployment-Reducing Effect of Tax Progressivity
Unemployment and tax design
Unemployment and Tax Design
Tax-Competition with Involuntary Unemployment
Tax policy and OECD unemployment
Ecological Tax Reform and Unemployment
Is there a social security tax wedge?
Is there a social security tax wedge?
Reducing unemployment through fundamental labour market reform
Reducing unemployment through fundamental labour market reform
Budget-neutral labour tax wedge reductions: A simulation-based analysis for selected euro area countries