Fiscal Implications of Personal Tax Adjustments in the Czech Republic
AbstractWe investigate the fiscal implications of the changes in personal income tax implemented in the Czech Republic in January 2006. In addition to evaluating the direct effect of this tax reform, our analysis takes into account its employment effect on the government budget due to individuals entering or leaving employment. We first estimate the probability of working (labor supply) as a function of the effective net wage and then simulate the impact of the changes in paid taxes and received benefits on employment. We find that a 10 percent rise in the net wage increases the probability of working by 0.55 and 0.18 percentage points for women and men respectively. These estimates suggest that the employment effect is unlikely to substantially alleviate the fall in net budget revenues. We predict that, for the sub-population of prime age employees, net government revenues decline by roughly 8 billion Czech korunas (CZK) as a consequence of the implemented income tax cuts. The employment effect counteracts the decline by only CZK 0.4 billion. The stimulating effect of the tax reform on employment is reduced by the current benefit system: the incentive to work due to the higher after-tax wage is partially offset by the fall in social benefits once people start working.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Czech National Bank, Research Department in its series Working Papers with number 2006/7.
Date of creation: Dec 2006
Date of revision:
Contact details of provider:
Postal: Na Prikope 28, 115 03 Prague 1
Phone: 00420 2 2442 1111
Fax: 00420 2 2421 8522
Web page: http://www.cnb.cz/en/research/research_intro/
More information through EDIRC
Fiscal effects; labor supply; personal income tax; tax reforms.;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-19 (All new papers)
- NEP-EEC-2007-05-19 (European Economics)
- NEP-LAB-2007-05-19 (Labour Economics)
- NEP-MAC-2007-05-19 (Macroeconomics)
- NEP-PBE-2007-05-19 (Public Economics)
- NEP-TRA-2007-05-19 (Transition Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Alena Bicakova & Jiri Slacalek & Michal Slavik, 2008.
"Labor Supply after Transition: Evidence from the Czech Republic,"
CERGE-EI Working Papers
wp351, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
- Alena Bièáková & Jiøí Slaèálek & Michal Slavík, 2011. "Labor Supply after Transition: Evidence from the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(4), pages 327-347, August.
- Bičáková, Alena & Slacalek, Jiri & Slavík, Michal, 2008. "Labor supply after transition: evidence from the Czech Republic," Working Paper Series 0887, European Central Bank.
- Robert Ambrisko & Jan Babecky & Jakub Rysanek & Vilem Valenta, 2012. "Assessing the Impact of Fiscal Measures on the Czech Economy," Working Papers 2012/15, Czech National Bank, Research Department.
- Alena Bicakova & Kamil Dybczak & Ales Krejdl & Jiri Slacalek & Michal Slavik, 2007. "CNB Economic Research Bulletin: Fiscal Policy and its Sustainability," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 5, number rb05/2 edited by Ian Babetskii & Vladimir Bezdek, October.
- Dennis P. J. Botman & Anita Tuladhar, 2008. "Tax and Pension Reform in the Czech Republic-Implications for Growth and Debt Sustainability," IMF Working Papers 08/125, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jan Babecky).
If references are entirely missing, you can add them using this form.