During the last decade, several EU countries have tried to tackle unemployment and low activity rates through extensive tax cuts. In an efiort to encourage the taking up of work - especially amongst the less productive workers - policymakers have shown increasing interest in targeted tax and social security contribution rebates as well as in beneflts conditional on being in employment. This paper surveys recent tax-beneflt reforms in Germany, the Netherlands, Italy, The UK, France and Belgium, focussing in particular on the reforms carried out in the latter. The potential labor supply efiect of the Belgian reforms are assessed via a discrete hours labor supply model. The results are then compared to similar evaluations of reforms implemented in the aforementioned countries. Results suggest that: (i) generalized tax cut are not always efiective in stimulating labor supply; (ii) in several central continental Europe, social security contributions play a major role in determining the incentives to take up work; (iii) joint assessment of income for both purposes of taxation and beneflt eligibility has unambiguous negative efiects on the labor supply of secondary earners (i.e. mostly women); (iv) targeted reductions in taxes and social security contributions, as well as beneflts conditioned on employment are efiective means to promote employment, but (v) e‐cient design of these policies is of greatest importance in order to counter potential negative incentive efiects on the population already in employment.
{"title":"Tax-Benefits Reforms and the Labor Market: Evidence from Belgium and Other EU Countries","authors":"Kristian Orsini","doi":"10.2139/ssrn.898847","DOIUrl":"https://doi.org/10.2139/ssrn.898847","url":null,"abstract":"During the last decade, several EU countries have tried to tackle unemployment and low activity rates through extensive tax cuts. In an efiort to encourage the taking up of work - especially amongst the less productive workers - policymakers have shown increasing interest in targeted tax and social security contribution rebates as well as in beneflts conditional on being in employment. This paper surveys recent tax-beneflt reforms in Germany, the Netherlands, Italy, The UK, France and Belgium, focussing in particular on the reforms carried out in the latter. The potential labor supply efiect of the Belgian reforms are assessed via a discrete hours labor supply model. The results are then compared to similar evaluations of reforms implemented in the aforementioned countries. Results suggest that: (i) generalized tax cut are not always efiective in stimulating labor supply; (ii) in several central continental Europe, social security contributions play a major role in determining the incentives to take up work; (iii) joint assessment of income for both purposes of taxation and beneflt eligibility has unambiguous negative efiects on the labor supply of secondary earners (i.e. mostly women); (iv) targeted reductions in taxes and social security contributions, as well as beneflts conditioned on employment are efiective means to promote employment, but (v) e‐cient design of these policies is of greatest importance in order to counter potential negative incentive efiects on the population already in employment.","PeriodicalId":285024,"journal":{"name":"Unemployment Insurance eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-02-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125774813","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we theoretically and empirically examine the common, but previously unexamined, case of a firm-varying tax which is used to finance a fringe benefit. While we use data from the experience-rated unemployment insurance (UI) system, it is important to realize that differential treatment of firms (such as special considerations for small business) under mandated benefits laws leads to costs which vary across firms and are analogous to experience-rated taxes. We present a theoretical model which highlights the importance of considering this variation in taxes or costs both within and across markets. We examine annual changes in either firm average earnings and employment or individual worker earnings at the same firm. This method removes unmeasured firm and worker characteristics, and thus avoids the omitted variable bias that has plagued past work on incidence and compensating differentials. Our results suggest that most of the market level tax is borne by the worker. However, this does not imply that there are no employment effects of the tax. Rather, we find that individual firms can only pass on a small share of the within market differences in the tax they face, leading to substantial employment reallocation across firms.
{"title":"The Incidence of a Firm-Varying Payroll Tax: The Case of Unemployment Insurance","authors":"P. Anderson, Bruce D. Meyer","doi":"10.3386/W5201","DOIUrl":"https://doi.org/10.3386/W5201","url":null,"abstract":"In this paper we theoretically and empirically examine the common, but previously unexamined, case of a firm-varying tax which is used to finance a fringe benefit. While we use data from the experience-rated unemployment insurance (UI) system, it is important to realize that differential treatment of firms (such as special considerations for small business) under mandated benefits laws leads to costs which vary across firms and are analogous to experience-rated taxes. We present a theoretical model which highlights the importance of considering this variation in taxes or costs both within and across markets. We examine annual changes in either firm average earnings and employment or individual worker earnings at the same firm. This method removes unmeasured firm and worker characteristics, and thus avoids the omitted variable bias that has plagued past work on incidence and compensating differentials. Our results suggest that most of the market level tax is borne by the worker. However, this does not imply that there are no employment effects of the tax. Rather, we find that individual firms can only pass on a small share of the within market differences in the tax they face, leading to substantial employment reallocation across firms.","PeriodicalId":285024,"journal":{"name":"Unemployment Insurance eJournal","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1995-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117314766","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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