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Indicators of unemployment and low-wage traps (Marginal effective tax rates on labour)

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Author Info

  • Giuseppe Carone

    (European Commission)

  • Aino Salomaki

    (European Commission)

  • Herwig Immervoll

    (OECD)

  • Dominique Paturot

    (OECD)

Abstract

This paper presents results of an on-going joint European Commission / OECD project, aimed at monitoring the direct influence of tax and benefit instruments on household incomes. Indicators of financial work incentives are needed for identifying any undesired influences of taxes and social transfers on people’s work decisions. Marginal effective tax rates (METRs) are calculated in order to show what part of a change in earnings is “taxed away” by the combined operation of taxes, social security contributions (SSCs), and any withdrawal of earnings related social benefits. Three different types of METRs are calculated in order to measure so-called low-wage,unemployment and inactivity traps, that is situations where incentives to work are low. The results allow the identification of countries and family types that face little financial incentive to increase work effort or to take up a job.

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File URL: http://128.118.178.162/eps/lab/papers/0409/0409007.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Labor and Demography with number 0409007.

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Length: 105 pages
Date of creation: 15 Sep 2004
Date of revision:
Handle: RePEc:wpa:wuwpla:0409007

Note: Type of Document - pdf; pages: 105
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Web page: http://128.118.178.162

Related research

Keywords: Unemployment trap; incentive to work; METR; tax on labour Make work pay; unemployment benefits.;

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References

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  1. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  2. G. Carone & A. Salom�ki, 2001. "Reforms in tax-benefit systems in order to increase emplyoment incentives in the EU," European Economy - Economic Papers 160, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. 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.
  4. Bover, O. & Arellano, M. & Bentolila, S., 1997. "Unemployment Duration, Benefit Duration, and the Business Cycle," Papers 9717, Centro de Estudios Monetarios Y Financieros-.
  5. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  6. Herwig Immervoll, 2003. "The Distribution Of Average And Marginal Effective Tax Rates In European Union Member States," Public Economics 0302005, EconWPA.
  7. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
  8. Immervoll, Herwig & O'Donoghue, Cathal, 2003. "Employment transitions in 13 European countries: levels, distributions and determining factors of net replacement rates," EUROMOD Working Papers EM3/03, EUROMOD at the Institute for Social and Economic Research.
  9. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
  10. Berger, Frederic & Borsenberger, Monique & Immervoll, Herwig & Lumen, Julie & Scholtus, Bertrand & de Vos, Klaas, 2001. "The Impact of Tax-Benefit Systems on Low-Income Households in the Benelux Countries. A Simulation Approach Using Synthetic Datasets," EUROMOD Working Papers EM3/01, EUROMOD at the Institute for Social and Economic Research.
  11. Francesco Daveri & Guido Tabellini, . "Unemployment, Growth and Taxation in Industrial Countries," Working Papers 122, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  12. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
  13. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
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Cited by:
  1. Afonso, António & Ebert, Werner & Schuknecht, Ludger & Thöne, Michael, 2005. "Quality of public finances and growth," Working Paper Series 0438, European Central Bank.
  2. Primoz Dolenc & Milan Vodopivec, 2005. "Does work pay in Slovenia?," Financial Theory and Practice, Institute of Public Finance, vol. 29(4), pages 341-362.
  3. Alho, Kari O. E., 2006. "Labour Market Institutions and the Effectiveness of Tax and Benefit Policies in Enchancing Employment: A General Equilibrium Analysis," Discussion Papers 1008, The Research Institute of the Finnish Economy.
  4. Dena Ringold & Leszek Kasek, 2007. "Social Assistance in the New EU Member States : Strengthening Performance and Labor Market Incentives," World Bank Publications, The World Bank, number 6744, October.

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