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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/66564
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| Title: | | Labor income responds differently to income-tax and payroll-tax reforms  |
| Authors: | | Lehmann, Etienne Marical, François Rioux, Laurence |
| Issue Date: | | 2012 |
| Series/Report no.: | | CESifo Working Paper: Public Finance 3974 |
| Abstract: | | We estimate the responses of gross labor income with respect to marginal and average net-of-tax rates in France over the period 2003-2006. We exploit a series of reforms to the income-tax and payroll-tax schedules affecting individuals who earn less than twice the minimum wage. Our estimate for the elasticity of gross labor income with respect to the marginal net-of-income-tax rate is around 0.2, while we find no response to the marginal net-of-payroll-tax rate. The elasticity with respect to the average net-of-tax rate is not significant for the income-tax schedule, while it is close to -1 for the payroll-tax schedule. A plausible explanation is the existence of significant labor supply responses to the income-tax schedule, combined with sticky posted wages (i.e., the gross labor income minus payroll taxes divided by hours worked). Finally, the effect of the net-of-income-tax rate seems to be driven by participation decisions, in particular those of married women. |
| Subjects: | | labor income payroll tax income tax |
| JEL: | | H24 H31 J22 J38 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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