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The Total Tax on Labour Income

  • Nordberg, Morten

    ()

    (The Ragnar Frisch Centre for Economic Research)

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    In the present paper we examine the economic incentives to work for persons receiving benefits in Norway. We take into account how the tax- and benefit systems interact. For a large part of the population social security transfers ensure that the income if not working is far from zero. These benefits are typically curtailed if a person works. By including this benefit loss in the tax measure we compute what we call “total” tax rates for all benefit claimants in Norway. We estimate that benefit receivers on average would gain about 70 000 NOK if working full-time instead of not working at all. The total tax rate is about 70 percent for full-time work. About 4 percent will be economically worse off if working full-time instead of not working at all. In addition we find that the tax reform intended to improve economic efficiency by cutting the highest marginal taxes, will worsen the economic incentives for benefit receivers if the lower top-rates are financed by higher taxes at lower incomes. Instead we indicate that reforms making the overall progressivity of the formal tax system stronger would improve the incentives to work for these groups.

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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2007/Memo-05-2007.pdf
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    Paper provided by Oslo University, Department of Economics in its series Memorandum with number 05/2007.

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    Length: 55 pages
    Date of creation: 01 Mar 2007
    Date of revision:
    Handle: RePEc:hhs:osloec:2007_005
    Contact details of provider: Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
    Phone: 22 85 51 27
    Fax: 22 85 50 35
    Web page: http://www.oekonomi.uio.no/indexe.html
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    1. Willi Leibfritz & John Thornton & Alexandra Bibbee, 1997. "Taxation and Economic Performance," OECD Economics Department Working Papers 176, OECD Publishing.
    2. Christian Brinch & Erik Hernæs & Steinar Strøm, 2001. "Labour Supply Effects of an Early Retirement Programme," CESifo Working Paper Series 463, CESifo Group Munich.
    3. Kell, Michael & Wright, Jane, 1990. "Benefits and the Labour Supply of Women Married to Unemployed Men," Economic Journal, Royal Economic Society, vol. 100(400), pages 119-26, Supplemen.
    4. Lumsdaine, Robin L. & Mitchell, Olivia S., 1999. "New developments in the economic analysis of retirement," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 49, pages 3261-3307 Elsevier.
    5. Erik Hernæs & Zhiyang Jia & Steinar Strøm, 2007. "Retirement in Non-Cooperative and Cooperative Families," Chapters, in: Ageing and the Labor Market in Japan, chapter 7 Edward Elgar.
    6. 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.
    7. Knut Røed & Fredrik Haugen, 2003. "Early Retirement and Economic Incentives: Evidence from a Quasi-natural Experiment," LABOUR, CEIS, vol. 17(2), pages 203-228, 06.
    8. Kay, John A, 1990. "Tax Policy: A Survey," Economic Journal, Royal Economic Society, vol. 100(399), pages 18-75, March.
    9. Favreault, Melissa & Ratcliffe, Caroline & Toder, Eric J., 1999. "Labor Force Participation of Older Workers: Prospective Changes and Potential Policy Responses," National Tax Journal, National Tax Association, vol. 52(n. 3), pages 483-504, September.
    10. Richard Blundell & Alan Duncan & Costas Meghir, 1995. "Estimating labour supply responses using tax reforms," IFS Working Papers W95/07, Institute for Fiscal Studies.
    11. Bruce Meyer, 2002. "Unemployment and workers' compensation programmes: rationale, design, labour supply and income support ," Fiscal Studies, Institute for Fiscal Studies, vol. 23(1), pages 1-49, March.
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