Labour Tax Reforms and Labour Demand in Finland 1997-2001
The report describes the development of labour taxation in Finland since the launching of the Employment Guidelines (EG) in 1997. The taxes considered include state and municipal taxes on earned income as well as social security payments of employees and employers. We find that the Finnish tax policies have been broadly in line with the EG goals of ?making the taxation more employment friendly? and targeting tax cuts to the low-paid workers. The size of the tax cuts has nevertheless been relatively modest and are unlikely to have any remarkable effects on labour demand. According to our illustrative calculations, the reduction in income taxes and social security payments could account for some 10 per cent of the overall improvement in employment since 1997. Also, the tax cuts seem to have favoured wage earners with relatively high annual income. At the aggregate level, the average effective tax burden on labour still lies clearly above the EU-average.
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