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A macroeconomic approach to the income-tax work-effort relationship

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  • Basil Dalamagas
  • Stelios Kotsios

Abstract

In this paper, we analyse the dynamic relationship between hours worked per employee (per self-employed) and marginal income tax-rate shocks in terms of both a comparative-dynamics model and a stochastic general equilibrium econometric model. The econometric model is estimated for Germany, UK and USA over the post-1960 period using the GMM estimation technique. Estimates in both models show that increases in the marginal income-tax rate exert negative effects on hours worked by both employees and the self-employed, but the response of the employees who are subject to tax withholding is stronger than the response of the self-employed.

Suggested Citation

  • Basil Dalamagas & Stelios Kotsios, 2012. "A macroeconomic approach to the income-tax work-effort relationship," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(3), pages 349-366, February.
  • Handle: RePEc:taf:irapec:v:26:y:2012:i:3:p:349-366
    DOI: 10.1080/02692171.2011.580269
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