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Title:Labor income responds differently to income-tax and payroll-tax reforms PDF Logo
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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