Advanced Search
MyIDEAS: Login to save this paper or follow this series

Labor Income Responds Differently to Income-Tax and Payroll-Tax Reforms

Contents:

Author Info

  • Etienne Lehmann

    ()
    (CREST)

  • François Marical

    ()
    (INSEE)

  • Laurence Rioux

    ()
    (CREST(INSEE))

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.

Download Info

If 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.
File URL: http://www.crest.fr/images/doctravail/doctravail2012/2012-24.pdf
File Function: Crest working paper version
Download Restriction: no

Bibliographic Info

Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2012-24.

as in new window
Length: 42
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:crs:wpaper:2012-24

Contact details of provider:
Postal: 15 Boulevard Gabriel Peri 92245 Malakoff Cedex
Phone: 01 41 17 60 81
Web page: http://www.crest.fr
More information through EDIRC

Related research

Keywords: Labor income; Payroll tax; Income tax;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Wojciech Kopczuk, 2003. "Tax Bases, Tax Rates and the Elasticity of Reported Income," NBER Working Papers 10044, National Bureau of Economic Research, Inc.
  2. Raj Chetty & Adam Looney & Kory Kroft, 2007. "Salience and Taxation: Theory and Evidence," NBER Working Papers 13330, National Bureau of Economic Research, Inc.
  3. Saez, Emmanuel & Matsaganis, Manos & Tsakloglou, Panos, 2010. "Earnings Determination and Taxes: Evidence from a Cohort-Based Payroll Tax Reform in Greece," Institute for Research on Labor and Employment, Working Paper Series qt5fr6354g, Institute of Industrial Relations, UC Berkeley.
  4. Matthieu Bunel & Yannick L'Horty, 2012. "The Effects of Reduced Social Security Contributions on Employment: an Evaluation of the 2003 French Reform," TEPP Working Paper 2012-12, TEPP.
  5. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
  6. Sanvi Avouyi-Dovi & Denis Fougère & Erwan Gautier, 2013. "Wage Rigidity, Collective Bargaining, and the Minimum Wage: Evidence from French Agreement Data," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1337-1351, October.
  7. Raj Chetty, 2009. "Bounds on Elasticities with Optimization Frictions: A Synthesis of Micro and Macro Evidence on Labor Supply," NBER Working Papers 15616, National Bureau of Economic Research, Inc.
  8. Martin Feldstein, 1993. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the1986 Tax Reform Act," NBER Working Papers 4496, National Bureau of Economic Research, Inc.
  9. Stancanelli, Elena G.F., 2008. "Evaluating the impact of the French tax credit on the employment rate of women," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2036-2047, October.
  10. Sören Blomquist & Håkan Selin, 2009. "Hourly Wage Rate and Taxable Labor Income Responsiveness to Changes in Marginal Tax Rates," CESifo Working Paper Series 2644, CESifo Group Munich.
  11. Lindsey, Lawrence B., 1987. "Individual taxpayer response to tax cuts: 1982-1984 : With implications for the revenue maximizing tax rate," Journal of Public Economics, Elsevier, vol. 33(2), pages 173-206, July.
  12. Francis Kramarz & Thomas Philippon, 2000. "The Impact of Differenctial Payroll Tax Subsidies on Minimum Wage Employment," Working Papers 2000-10, Centre de Recherche en Economie et Statistique.
  13. Adriana Kugler & Maurice Kugler, 2009. "Labor Market Effects of Payroll Taxes in Developing Countries: Evidence from Colombia," Economic Development and Cultural Change, University of Chicago Press, vol. 57(2), pages 335-358, 01.
  14. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  15. Emmanuel Saez, 1999. "The Effect of Marginal Tax Rates on Income: A Panel Study of 'Bracket Creep'," NBER Working Papers 7367, National Bureau of Economic Research, Inc.
  16. Feldstein, Martin, 1995. "Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Scholarly Articles 2766676, Harvard University Department of Economics.
  17. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
  18. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S72-101, July.
  19. Gerald Auten & Robert Carroll, 1999. "The Effect Of Income Taxes On Household Income," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 681-693, November.
  20. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
  21. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
  22. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  23. David Sraer & Romain Aeberhardt, 2009. "Allégements de cotisations patronales et dynamique salariale," Économie et Statistique, Programme National Persée, vol. 429(1), pages 177-189.
  24. Hersoug, Tor, 1984. "Union Wage Responses to Tax Changes," Oxford Economic Papers, Oxford University Press, vol. 36(1), pages 37-51, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Etienne LEHMANN & Claudio LUCIFORA & Simone MORICONI & Bruno VAN DER LINDEN, 2013. "Beyond the Labour Income Tax Wedge: The Unemployment-Reducing Effect of Tax Progressivity," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2013018, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Michaël Zemmour, 2013. "Les dépenses socio-fiscales ayant trait à la protection sociale : état des lieux," Sciences Po publications info:hdl:2441/6o65lgig8d0, Sciences Po.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:crs:wpaper:2012-24. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Florian Sallaberry).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.