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Distribution of Average, Marginal and Participation Tax Rates among Czech Taxpayers: Results from a TAXBEN Model

We present empirical distributions of the average, marginal and participation tax rates on earnings across the population of Czech taxpayers under the current tax-and-benefit system. We quantify significant differences between the taxation of employees and the self-employed: the average tax rates on wage income and business income are 37.4% and 28.1%, respectively, even though the self-employed tend to have higher earnings. On average, employees and the self-employed face effective marginal tax rates of 46.4% and 30.9%, respectively. The tax system exhibits almost no progressivity—the top income decile earns 26.7% of total income and pays 26.7% of total taxes—despite the fact that it is designed to be progressive by providing generous tax credits. There are large dispersions in the tax rates for people with similar earnings.

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Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 63 (2013)
Issue (Month): 6 (December)
Pages: 474-504

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Handle: RePEc:fau:fauart:v:63:y:2013:i:6:p:474-504
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  1. Immervoll, Herwig & O'Donoghue, Cathal, 2002. "Welfare benefits and work incentives: an analysis of the distribution of net replacement rates in Europe using EUROMOD, a multi-country microsimulation model," EUROMOD Working Papers EM4/01, EUROMOD at the Institute for Social and Economic Research.
  2. Herwig Immervoll, 2004. "Average and Marginal Effective Tax Rates Facing Workers in the EU: A Micro-Level Analysis of Levels, Distributions and Driving Factors," OECD Social, Employment and Migration Working Papers 19, OECD Publishing.
  3. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2009. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 504-554, 06.
  4. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
  5. Ondřej Schneider & Tomáš Jelínek, 2004. "Distributive Impact of Czech Social Security and Tax Systems in Early 2000`s," Working Papers IES 67, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2004.
  6. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
  7. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 205-229.
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