Tax Wedge Research Articles

Anticipated property tax increases and the timing of home sales: Evidence from administrative data

AbstractThe infrequent reassessment of properties results in a divergence between the assessed values of current owners and prospective purchasers. This divergence is reduced when properties are reassessed, as is the tax “wedge” between current owners and prospective buyers. We examine how a reassessment‐induced reduction in this tax wedge affects home sales. Using data from Lexington, KY and our preferred approach, we find that reassessments are associated with an increase in sales of approximately 5%. Using an alternative approach, we find that a 10% increase in taxes due to reassessment increases the probability of a sale by 3%.

Die Effekte einer Lohnnebenkostensenkung für die Volkswirtschaft und die Wettbewerbsfähigkeit

Abstract The tax and social contribution ratio in Austria is very high by European standards, taxes on income in particular. This is reflected in a very wide tax wedge between labour costs and net income. The particularly high inflation in Austria in recent years has led to high wage increases and a loss of competitiveness. Based on a model analysis, it is shown that a reduction of taxes on the wage-sum by 1.4 % of GDP dampens the development of wage costs and increases employment by around 0.9 % or 40,000 persons. In addition, the reform reduces the GDP deflator by 0.9 to 0.7 percentage points and implies an increase in the real export volume by 1.4 % in the first three years.

IS THE TAX WEDGE IN POLAND NON-LINEAR?

The article attempts to answer the question posed in the title - is the tax wedge in Poland non-linear? The aim of the article is to present changes in the size of the tax wedge with the increase in gross pay and to examine whether there is a pay threshold beyond which the size of the tax wedge decreases. In the course of the research, the impact of gross pay on the size of the tax wedge was compared. The study also attempts to indicate the gross pay, beyond which the size of the tax wedge increases again.
 A hypothesis was formulated that there is a pay threshold beyond which the tax wedge loses its linear character. The comparative analysis of the size of the tax wedge was carried out on twenty-three variants of gross pay. The results show that after exceeding the gross spay of PLN 20,100, the tax wedge loses its linear character.

IDENTIFYING BEHAVIORAL RESPONSE TO TAX CHANGE OF LABOR INCOME IN UKRAINE

Introduction. The National Revenue Strategy states that one of the directions for the further development of the national taxation system is the restoration of the progressive rates’ scale of personal income tax. Such a proposal looks appropriate and corresponds to the trends in the development of the labor market, the system of income generation in the national economy, and the demands of society. At the same time, the opportunistic reaction of taxpayers to the introduction of additional (increased) tax rates may lead to further evasion of labor income from taxation and, accordingly, an increase in tax risks of the state budget. Purpose of the article is to identificate of the behavioral response effect of the economic agents to tax change of labor income in Ukraine. Results. Changes in the taxation of labor income in 2015-2017 are characterized by the dynamics of such analytical indicators as the average effective tax rate and the tax wedge. The nominal growth of the wage fund in 2016 and 2017 is due to the following changes in taxation: an increase in the tax base and an increase in the average effective tax rate. In the short and medium term, reducing the tax burden did not have the expected positive effect, as predicted by the logic of Laffer's model. There is a significant increase in the share of wages at the average level, from 53.5% in 2012 to 63.8% in 2020. The share of labor income in the intervals from the lowest to the average earnings as of 2020 was more than 80%. The presence of an alternative system of income taxation with a significantly lower level of tax burden than the general system creates additional risks of effective implementation of personal income tax with a progressive scale of rates. Conclusions. The system of formation and distribution of labor income has undergone significant changes. The extremes of the income distribution (lowest and highest) were in relative gain compared to others. the introduction of a progressive scale of taxation rates exclusively for labor income in Ukraine does not have sufficient fiscal potential. In the case of a suboptimal political decision, with insufficient institutional capacity of control bodies and the presence of an alternative system of income taxation, there is a high probability of a significant increase in tax risks for state and local budgets.

Налоговая нагрузка НДФЛ и страховых взносов в Российской Федерации

Introduction: the period between 2000 to 2020 was marked by serious changes in taxation in the Russian Federation. The consequences of these changes for both the budget system and residents of Russia are still poorly studied, in particular, with reference to the impact of changes in social contribution rates and the introduction of various tax benefits on reducing income inequality. Such studies are necessary for both determining the degree of distortion in various incentives by tax policy measures and evaluating the effectiveness of these measures. Objectives: to assess the tax burden on individuals and households in order to determine the degree to which tax reforms comply with the originally stated goals, primarily, in terms of fairness criteria. Methods: analysis of distribution curves, regression analysis. Results: the tax wedge assessments based on the survey data revealed the differences between the actual level of the tax burden and the formal tax burden as well as tax evasion typical for low-income groups of the population. At the same time, there were no significant differences found in the tax burden distribution in individuals and households. Conclusions: the taxation system for individuals in Russia is regressive. The results obtained turned out to be robust to the choice of specifications of the estimated equations. It is important to note that there is a relatively high degree of regressiveness of the taxation scale in terms of insurance premiums and, at the same time, a bell-shaped dependence of the tax burden on the size of the payroll.

Tax wedges, financial frictions and misallocation

We revisit the classical result that in a closed economy the incidence of corporate taxes on labor is approximately zero. We consider a rich general equilibrium framework, where agents differ in the level of their wealth as well as in their managerial and working ability. Potential entrepreneurs go through all the key decisions affected by corporate tax changes: the choice of (i) occupation, (ii) organizational form, (iii) investment, and (iv) financing structure. We allow both for the presence of financial frictions and the traditional tax advantage of debt over corporate equity, which jointly generate misallocation of capital and talent. In this environment we characterize the effects of increasing corporate taxes both analytically and for a calibrated version of the model. We show that this tax increase reallocates production from C corporations to pass-through businesses. Since, due to distorted prices, the latter have higher capital-labor ratios, this reallocation generates a reduction in labor productivity and wages. Furthermore, the corporate tax increase induces some C corporations to reorganize as pass-throughs, which implies more restricted access to external funds and thus a socially inefficient downsizing of production in these firms. Finally, the tax increase causes further misallocation of talent by inducing agents with low wealth relative to their managerial talent to switch from entrepreneurship to being workers, while the reverse happens for agents with higher wealth and lower managerial skills. Overall, we find that both labor and capital bear a large share of the corporate tax incidence, while entrepreneurs are net beneficiaries of the tax change.

How Tax Wedge of Low and Upper-income Households Affects Income Distribution: Findings from OECD Countries

How Tax Wedge of Low and Upper-income Households Affects Income Distribution: Findings from OECD Countries

On the properties of the labour wedge: hours worked and government transfers in perspective

ABSTRACT Questions surrounding the labour wedge and the tax wedge in the United States are complicated by the fact that, historically, there is a lack of coherent relationship between the series of hours worked (based on standard measurements) and that of the tax wedge. This has been cited as grounds for discounting the tax wedge as a viable explanation for the behaviour of the labour wedge. In this paper, I explore an alternative measurement of labour hours in the United States in a bid to clear up some of the morass surrounding the tax wedge and hours worked. In the process, I show that, the labour wedge is rather more aligned with available labour hours over the business cycle than it does actual hours worked. Moreover, cyclical properties of the available hours series, however puzzling, are explained by the presence of a government transfer scheme which I introduce in the household side of the market. Also, the presence of the transfer scheme alters the marginal rate of substitution (MRS) between consumption and leisure, and by doing so, reverses the cyclical properties of the tax wedge. This puts the tax wedge in alignment with the labour wedge over the business cycle.

Tax burden on labour income of young persons

Systematic reduction of the tax burden on labour income in the period between 2014 and 2021 led to a drop in the average tax wedge by 4.2 percentage points. The analysis by age group shows that persons under the age of 30 experienced a larger reduction of the average tax wedge than the other age groups, primarily due to the introduction of reliefs for young workers in the systems of social insurance contributions and personal income tax.

Fiscal policies in the Federation of Bosnia and Herzegovina: are spending or revenue measures more effective?

We examine the effectiveness of different fiscal policies in the Federation of Bosnia and Herzegovina (FBiH). For this purpose, we use a structural macroeconomic model for the FBiH. In this model, GDP in the Federation is influenced by world demand and by domestic demand in the Federation. Domestic demand comprises consumption of private households, public consumption, and gross fixed capital formation. Employment depends positively on GDP and negatively on the tax wedge, i.e., the net wage plus social security contribution rates (including the unemployment insurance), and the personal income tax rate in the Federation. The latter allows the analysis of the impact of changes in social security contribution rates or in the income tax rate in the Federation of Bosnia and Herzegovina. The following Federation-specific policy instruments are implemented in the model for the FBiH: Pension funds contribution rate in FBiH; contribution rate for health insurance in FBiH; contribution rate for the unemployment insurance in FBiH; benefits from social security; direct tax rates (income tax rate, corporate tax rate); public consumption in FBiH. Our results show that policy measures that reduce the tax wedge on labour income are highly effective in stimulating employment. Due to the large elasticity of imports with respect to demand, pure demand-side measures have little impact on real variables, indicating that a small open economy like the Federation of Bosnia and Herzegovina has only little scope for influencing macroeconomic developments with pure demand management policies. Our results confirm earlier theoretical and empirical studies showing that the labour market can best be influenced positively by reducing the tax wedge. The multipliers of income tax reductions are larger and oscillate more than the effects of the other fiscal policy measures.

Comparative analysis of the tax wedge in Croatia and Slovenia from 2005 to 2020

Purpose: Personal income tax (PIT) and social security contributions (SSC) play a significant role in tax systems. Since both of them affect employers and employees, it is important to analyse the labour costs paid by the employer (gross wage) and the net wage received by the employee, i.e., the tax wedge. Methodology: Following OECD’s Taxing Wages methodology, this paper analyses the characteristics of the tax wedge and the tax wedge policy in the Republic of Croatia and the Republic of Slovenia in the period from 2005 to 2020. Results: The conducted analysis has shown that a Slovenian taxpayer faces the highest average net tax wedge for each observed family type, and that the Croatian tax wedge is lower in all hypothetical units observed. The taxpayer with the highest average gross wage also faces the highest tax burden. The problem of a relatively high tax wedge in Croatia and Slovenia does not lie with the personal income tax, which is relatively low, but with social contributions. Conclusion: The tax wedge primarily depends on the level of income, it decreases if the taxpayer has (more) children, and its amount depends on various levels of tax, deductions and social security contributions. In the future, the focus will be on alleviating the labour tax burden. However, this begs the question of how to further alleviate the burden on labour without implementing major structural reforms in the pension and healthcare system and/or introducing new tax forms.

Do labour market institutions variables impact unemployment?Evidence from the CEE countries

Purpose: In this study, the aim is to determine whether labour market institutions (LMI) variables im-pacted the unemployment rate in the Central and Eastern Europe (CEE) countries between 2000 and 2017.Methodology: Panel data methods that take cross-sectional dependence into account are used for the analysis. Results: Empirical findings show that real minimum wages, tax wedge, and union density do not impact the unemployment rate in Poland, Latvia, and Estonia, while these variables impact the unemployment rate in Slovakia, the Czech Republic, Slovenia, and Hungary.Conclusion: As a result of the research, it is concluded that the LMI variables do not have a substantial effect on the unemployment rate in Poland, Latvia, and Estonia. On the other hand, the LMI variables have a substantial impact on the unemployment rate in Slovakia, the Czech Republic, Slovenia, and Hungary. Therefore, it is understood that the LMI variables have an influence on the unemployment in only four out of seven CEE countries.

Active and passive labour-market policies: the outlook from the Beveridge curve

ABSTRACT Following a panel ARDL approach, we appraise the impact of various indicators of active and passive labour-market policies within the framework of the Beveridge curve across fourteen OECD countries from 1985 to 2013, controlling for other factors, both institutional (tax wedge) and structural (technological progress, globalization). We embed the role of these variables within the specification of the Beveridge curve, finding that the generosity of unemployment benefits has a detrimental impact on labour-market matching, with the duration of benefits and the strictness of the rules pertaining to the deployment of benefits taking a key role in driving this result. Among active labour-market policies, employment incentives and especially training have a favourable effect on matching. There is evidence of a virtuous interaction between active and passive policies. A significantly detrimental role emerges for the tax wedge. These results are consistent across various specifications, and structural relationships are stable throughout the 2008–2013 period.

Determinants of Labour Force Participation in Nigeria: The Role of Expansion in Tertiary Education and Internet

The aim of this study is to examine the determinants of labour force participation in Nigeria. The Fully Modified OLS was used to investigate the relationship between labour force participation rate and, life expectancy rate, trade openness, education (% secondary), education (% tertiary), labour tax wedge, dummy variable for era of expansion tertiary education in Nigeria, ratio of service to industry, and number of internet users from 1990 to 2021. The series were tested for the stationarity with ADF and the results showed that all the series were stationary at first difference. The Johansen cointegration technique was employed to examine the existence of long run relationship among the series and the result showed the existence of six cointegration equation among the series. The findings of the study showed that life expectancy rate, internet, and the interaction of tertiary education, dummy variable for the expansion of tertiary education in Nigeria and internet contribute significantly to labour force participation in Nigeria. The authors concluded that expansion in tertiary education combined with access to internet is a necessity for labour force participation in Nigeria. The authors therefore recommended that there should be improvement in social infrastructure as to enhance good living conditions among the population; thereby, increase their lifespan. In addition, the recent investment in ICT should be sustained in order to ensure that great numbers of Nigerians, especially students have access to internet. Lastly, the government can liberalise the economy to give room for foreign investors’ involvement in manufacturing of ICT infrastructure and accessories.

Club convergence of labor market institutions in the European Union

This paper analyzes the convergence of labor market institutions in the European Union (EU) to test for the economic integration of EU countries from 1993 to 2018. The convergence is measured by using a flexible approach of the log-t regression for five indicators of labor market institutions: employment protection legislation index (EPL), tax wedge, unemployment benefits, active labor market policies, and minimum wages. The results suggest no convergence in labor market institutions between the EU member states. The differences between the institutions are still substantial, and the labor market institutions are changing too slowly to converge. The empirical analysis also considers the possibility of club convergence, differentiating between the endogenous clubs based on clustering algorithm, and the exogenous clubs based on geographical proximity and similarities of labor market institutions. Convergence is present only in endogenous clubs that are determined by different demographic, competitiveness, and economic factors. Since labor market institutions are the fundamental determinants of employment and unemployment, the differences found in the labor market institutions suggest that employment and unemployment levels in the EU will hardly converge, implying weak labor market integration.

Why are wage shares worsening in a competitive economy? A brief review of pays equality and industrial politics

Wage shares have fallen substantially almost all over the world over the past 30 years. This study aims to provide a discussion of the critical elements of wage shares and to undertake a critical review of the empirical papers regarding the issue of the income distribution for labour. This paper investigates the wage share and determinants of 34 countries in 2011. There are two main objectives of this research. Firstly, the paper attempted to analyse the effectiveness of the incentives system, which is more likely to be rigid in the competitive work environment. Secondly, the research has emphasised how workers' behaviour can lead to different incentives payment through a kind of predatory behaviour or later on, we can call it an uncooperative behaviour. These objectives derived from the previous paper result in the adverse selection of worker turnover (Lazear, 1986). The findings confirm that the effect of globalisation through current account balance and the structural policy with tax wedge rate is statistically significant in wage share for those with low wage share (at the 10th per cent quantile) only. However, there is limited evidence that inflation, unemployment, education policy, and unionisation strongly affect the distribution of wages

Why are wage shares worsening in a competitive economy? A brief review of pays equality and industrial politics

Wage shares have fallen substantially almost all over the world over the past 30 years. This study aims to provide a discussion of the critical elements of wage shares and to undertake a critical review of the empirical papers regarding the issue of the income distribution for labour. This paper investigates the wage share and determinants of 34 countries in 2011. There are two main objectives of this research. Firstly, the paper attempted to analyse the effectiveness of the incentives system, which is more likely to be rigid in the competitive work environment. Secondly, the research has emphasised how workers' behaviour can lead to different incentives payment through a kind of predatory behaviour or later on, we can call it an uncooperative behaviour. These objectives derived from the previous paper result in the adverse selection of worker turnover (Lazear, 1986). The findings confirm that the effect of globalisation through current account balance and the structural policy with tax wedge rate is statistically significant in wage share for those with low wage share (at the 10th per cent quantile) only. However, there is limited evidence that inflation, unemployment, education policy, and unionisation strongly affect the distribution of wages

The Effect of Tax Wedge and Industrialization on Female Labor Force Participation

The Effect of Tax Wedge and Industrialization on Female Labor Force Participation

ARDL bounds test for cointegration: Replicating the Pesaran et al. (2001) results for the UK earnings equation using R

SummaryThis paper replicates the UK earnings equation using the autoregressive distributed lag (ARDL) modeling approach and the bounds test for cointegration by Pesaran et al. (Journal of Applied Econometrics, 2001, 16(3), 289–326). The findings from the narrow sense fully replicate the original results using the open‐source language R and the ARDL package. In the wide sense replication, augmented data are employed, thus extending the end period from 1997:Q4 to 2019:Q4, using an alternative measure for union power. Adopting the new dataset, this study reinvestigates the UK earnings equation, thereby providing supporting evidence of a long‐run relationship and reveals empirical findings about the long‐run effects of productivity, unemployment, tax wedge, and union power on wages.

Tax Burden on Labor Income in Croatia: Calculation and Analysis Based on Administrative Data

ABSTRACT The tax wedge for employment income in Croatia is calculated using administrative microdata. The analysis covering the period 2014–2018 demonstrates that the average tax wedge dropped from 33.2% in 2014 to 31.2% in 2018, which is the result of changes to both the social insurance contributions and personal income taxation systems. In addition, the analysis shows that tax wedge levels in Croatia are substantially lower than what had been shown in previous research, where results were primarily derived by analyzing hypothetical individuals.