IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Estimates of employment and welfare effects of personal labour income taxation in a flat-tax country : The case of Estonia

  • Karsten Staehr

    ()

This paper presents estimates of the employment and welfare effects of personal labour income taxation in Estonia. The labour supply decision of individuals is estimated based on data from the 2005 Estonian Labour Force Survey. Economic incentives are found to affect the participation decisions of individuals, but not the number of hours worked by individuals already working. The participation elasticities are higher for individuals in the middle income groups than for individuals in the low and high income groups. Increasing the proportional tax rate by 1 percentage point is found to reduce total employment by 0.35 percentage points. The baseline estimate of the marginal cost of public funds is 1.6 if the proportional tax rate is increased and 1.8 if the basic exemption is lowered. The marginal cost of public funds varies across different income groups, which may suggest possible gains in efficiency from reallocating the taxation burden of the existing system of proportional taxation. The employment and welfare estimates are subject to substantial

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.eestipank.ee/sites/eestipank.ee/files/publication/en/WorkingPapers/2008/_wp_308.pdf
Download Restriction: no

Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2008-03.

as
in new window

Length:
Date of creation: 30 Oct 2008
Date of revision: 30 Oct 2008
Handle: RePEc:eea:boewps:wp2008-03
Contact details of provider: Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
Phone: +3726680719
Fax: +3726680900
Web page: http://www.bankofestonia.infoEmail:


More information through EDIRC

Order Information: Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
Email:


References listed on IDEAS
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.:

as in new window
  1. Michael Kremer, 1997. "Patent Buy-Outs: A Mechanism for Encouraging Innovation," NBER Working Papers 6304, National Bureau of Economic Research, Inc.
  2. Stuart, Charles E, 1984. "Welfare Costs per Dollar of Additional Tax Revenue in the United States," American Economic Review, American Economic Association, vol. 74(3), pages 352-62, June.
  3. D. Tondani, 2006. "Estimating the effects of personal income tax on labour supply in Italy," Economics Department Working Papers 2006-EP03, Department of Economics, Parma University (Italy).
  4. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2007. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0720, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  5. Michael Keen & Alexander Klemm & Anna Ivanova, 2005. "The Russian Flat Tax Reform," IMF Working Papers 05/16, International Monetary Fund.
  6. Ricardo Varsano & Kevin Kim & Michael Keen, 2006. "The "Flat Tax(es)"; Principles and Evidence," IMF Working Papers 06/218, International Monetary Fund.
  7. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2007. "Gender Based Taxation and the Division of Family Chores," NBER Working Papers 13638, National Bureau of Economic Research, Inc.
  8. Francis Vella, 1998. "Estimating Models with Sample Selection Bias: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 127-169.
  9. Lawrence H. Goulder & Roberton C. Williams III, 2003. "The Substantial Bias from Ignoring General Equilibrium Effects in Estimating Excess Burden, and a Practical Solution," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 898-927, August.
  10. Ugo Colombino & Steinar Strøm & Rolf Aaberge, 2000. "Labor supply responses and welfare effects from replacing current tax rules by a flat tax: Empirical evidence from Italy, Norway and Sweden," Journal of Population Economics, Springer, vol. 13(4), pages 595-621.
  11. Boriss Siliverstovs & Dmitri Koulikov, 2003. "Labor Supply of Married Females in Estonia," Discussion Papers of DIW Berlin 321, DIW Berlin, German Institute for Economic Research.
  12. Browning, Edgar K, 1987. "On the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 77(1), pages 11-23, March.
  13. Kristjan-Olari Leping & Ott Toomet, 2007. "Ethnic Wage Gap And Political Break-Ups: Estonia During Political And Economic Transition," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 53, Faculty of Economics and Business Administration, University of Tartu (Estonia).
  14. Giuseppe Ruggieri, 1999. "The marginal cost of public funds in closed and small open economies," Fiscal Studies, Institute for Fiscal Studies, vol. 20(1), pages 41-60, March.
  15. Michiel Evers & Ruud de Mooij & Daniel van Vuuren, 2005. "What explains the variation in estimates of labour supply elasticities?," CPB Discussion Paper 51, CPB Netherlands Bureau for Economic Policy Analysis.
  16. Alan J. Auerbach & James R. Hines Jr., 2001. "Taxation and Economic Efficiency," NBER Working Papers 8181, National Bureau of Economic Research, Inc.
  17. Cheryl Gray & Tracey Lane & Aristomene Varoudakis, 2007. "Fiscal Policy and Economic Growth : Lessons for Eastern Europe and Central Asia," World Bank Publications, The World Bank, number 6883, March.
  18. Kuismanen, Mika, 2000. "Labour Supply and Income Tax Changes: A Simulation Study for Finland," Research Discussion Papers 5/2000, Bank of Finland.
  19. Browning, Edgar K, 1976. "The Marginal Cost of Public Funds," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 283-98, April.
  20. Kleven, Henrik & Kreiner, Claus Thustrup, 2006. "The Marginal Cost of Public Funds: Hours of Work versus Labor Force Participation," CEPR Discussion Papers 5594, C.E.P.R. Discussion Papers.
  21. Hogan, Vincent, 2004. "The welfare cost of taxation in a labour market with unemployment and non-participation," Labour Economics, Elsevier, vol. 11(4), pages 395-413, August.
  22. Martin Feldstein, 1995. "Tax Avoidance and the Deadweight Loss of the Income Tax," NBER Working Papers 5055, National Bureau of Economic Research, Inc.
  23. Ringa Raudla & Karsten Staehr, 2003. "Pension Reforms and Taxation in Estonia," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 4(1), pages 64-92, December.
  24. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eea:boewps:wp2008-03. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peeter Luikmel)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.