Abstract
Abstract This paper measures the 2007–13 evolution of employment tax rates in the U.K. and the U.S. The U.S. changes are greater, in the direction of taxing a greater fraction of the value created by employment, and primarily achieved with new implicit tax rates. Even though both countries implemented a temporary “fiscal stimulus,” their tax rate dynamics were different: the U.S. stimulus increased rates, whereas the U.K. stimulus reduced them. The U.K. later increased the tax on employment during its “austerity” period. Tax rate measurements are a first ingredient for cross-country comparisons of labor markets during and after the financial crisis.
Highlights
Many countries of the world experienced an unusually deep and long recession after 2007
This paper provides tax measures, and shows how changes in tax rates are linked to specific legislation
2.1 A worker’s tax year budget constraint My model of the U.K. worker features a consumption tax, payroll taxes, personal income taxes, benefits based on personal income, and benefits for the unemployed
Summary
Many countries of the world experienced an unusually deep and long recession after 2007. The purpose of this paper is to compare changes in fiscal policy parameters as they affected the incentives of middleclass Americans and British to be employed. This paper comparably quantifies fiscal policy in terms of one of the fundamentals: the wedge between the supply price of labor and the demand price of labor. It finds that the two countries have been different in terms of the evolution of employment taxation, on average and across demographic groups.
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