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Title:What do we work for? An anatomy of pre- and post-tax earnings growth PDF Logo
Authors:Frederiksen, Anders
Halliday, Timothy
Koch, Alexander K.
Issue Date:2010
Series/Report no.:Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 5298
Abstract:Promotions and cross-firm mobility provide substantial gains in earnings - a well established finding based on gross income data. Yet, what matters for incentives is how much an individual can consume or save after taxation. We show that net and gross income growth patterns may differ substantially when a progressive tax system allows for deduction opportunities. Exploiting unique matched employer-employee data with information on tax payments and employee mobility, we find that gross income gains from promotions and cross-firm mobility do not translate into significantly higher net income growth, because employees adjust their tax-shielded consumption and savings (in particular, deductible private pension contributions and mortgage-financed housing) to maintain constant net income growth.
Subjects:earnings growth
promotions
mobility
taxable income
dynamic panel data models
matched employer-employee data
JEL:M51
J6
C33
H31
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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