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The Effects of Progressive Income Taxation on Job Turnover

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Author Info
William M. Gentry
R. Glenn Hubbard

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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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Handle: RePEc:nbr:nberwo:9226

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H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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Cited by:
(explanations, 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.)

  1. Heinz Handler & Andreas Knabe & Bertrand Koebel & Margit Schratzenstaller & Sven Wehke, 2005. "The Impact of Public Budgets on Overall Productivity Growth," WIFO Working Papers 255, WIFO. [Downloadable!]
  2. Stuart Adam & Mike Brewer & Andrew Shephard, 2006. "Financial work incentives in Britain: comparisons over time and between family types," IFS Working Papers W06/20, Institute for Fiscal Studies. [Downloadable!]
  3. Anca Cotet, 2009. "Death And Taxes: The Impact Of Progressive Taxation On Health," Working Papers 200903, Ball State University, Department of Economics, revised Mar 2009. [Downloadable!]
  4. Christopher Bailey & Jason Taylor, 2005. "Preferences for Government Size and their Effect on Labor-Leisure Decisions," Economics Bulletin, Economics Bulletin, vol. 8(5), pages 1-6. [Downloadable!]
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