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The Effects of Progressive Income Taxation on Job Turnover

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  • William M. Gentry
  • R. Glenn Hubbard

Abstract

We examine whether the level of the income tax rate and the convexity of the income tax schedule affect job mobility, as measured by moving to a better job. While the predicted effect of the level of the tax rate is ambiguous, we predict that an increase in the convexity of the tax schedule decreases job search activity by taxing away some of the benefits of a successful job search. Using data from the Panel Study of Income Dynamics, we estimate that both higher tax rates and increased tax rate progressivity decrease the probability that a head of household will move to a better job during the coming year. Our estimates imply that a five-percentage-point reduction in the marginal tax rate increases the average probability of moving to a better job by 0.79 percentage points (a 8.0 percent increase in the turnover propensity) and that a onestandard- deviation in our measure of tax progressivity would increase this probability by 0.86 percentage points (a 8.7 percent increase in the turnover propensity).

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9226.

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Date of creation: Sep 2002
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Publication status: published as Gentry, William M. and R. Glenn Hubbard. "The Effects Of Progressive Income Taxation On Job Turnover," Journal of Public Economics, 2004, v88(11,Sep), 2301-2322.
Handle: RePEc:nbr:nberwo:9226

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Cited by:
  1. Anca Cotet, 2009. "Death And Taxes: The Impact Of Progressive Taxation On Health," Working Papers, Ball State University, Department of Economics 200903, Ball State University, Department of Economics, revised Mar 2009.
  2. repec:ebl:ecbull:v:8:y:2005:i:5:p:1-6 is not listed on IDEAS
  3. Richard Kneller & Danny McGowan, 2012. "Tax Policy and Firm Entry and Exit Dynamics: Evidence from OECD Countries," Working Papers 12006, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  4. Mina Baliamoune-Lutz & Pierre Garello, 2014. "Tax structure and entrepreneurship," Small Business Economics, Springer, Springer, vol. 42(1), pages 165-190, January.
  5. Stuart Adam & Mike Brewer & Andrew Shephard, 2006. "Financial work incentives in Britain: comparisons over time and between family types," IFS Working Papers, Institute for Fiscal Studies W06/20, Institute for Fiscal Studies.
  6. Jason Taylor & Christopher Bailey, 2005. "Preferences for Government Size and their Effect on Labor-Leisure Decisions," Economics Bulletin, AccessEcon, vol. 8(5), pages 1-6.
  7. Andrew Shephard, 2011. "Equilibrium Search and Tax Credit Reform," Working Papers, Princeton University, Department of Economics, Center for Economic Policy Studies. 1336, Princeton University, Department of Economics, Center for Economic Policy Studies..
  8. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 50(2-3), pages 127-178, December.
  9. Heinz Handler & Andreas Knabe & Bertrand Koebel & Margit Schratzenstaller & Sven Wehke, 2005. "The Impact of Public Budgets on Overall Productivity Growth," WIFO Working Papers, WIFO 255, WIFO.
  10. Richard Kneller & Danny McGowan, . "Entrepreneurship Dynamics, Market Size and Fiscal Policy," Discussion Papers 11/07, University of Nottingham, School of Economics.
  11. Gibbons, Steve & Silva, Olmo & Weinhardt, Felix, 2014. "Neighbourhood Turnover and Teenage Attainment," IZA Discussion Papers 8381, Institute for the Study of Labor (IZA).

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