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The Effects of Progressive Income Taxation on Job Turnover

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  • William M. Gentry
  • R. Glenn Hubbard

Abstract

We examine whether the level of the income tax rate and the convexity of the income tax schedule affect job mobility, as measured by moving to a better job. While the predicted effect of the level of the tax rate is ambiguous, we predict that an increase in the convexity of the tax schedule decreases job search activity by taxing away some of the benefits of a successful job search. Using data from the Panel Study of Income Dynamics, we estimate that both higher tax rates and increased tax rate progressivity decrease the probability that a head of household will move to a better job during the coming year. Our estimates imply that a five-percentage-point reduction in the marginal tax rate increases the average probability of moving to a better job by 0.79 percentage points (a 8.0 percent increase in the turnover propensity) and that a onestandard- deviation in our measure of tax progressivity would increase this probability by 0.86 percentage points (a 8.7 percent increase in the turnover propensity).

Suggested Citation

  • William M. Gentry & R. Glenn Hubbard, 2002. "The Effects of Progressive Income Taxation on Job Turnover," NBER Working Papers 9226, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9226 Note: LS PE
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    1. repec:pri:cepsud:223shephard is not listed on IDEAS
    2. Gibbons, Stephen & Silva, Olmo & Weinhardt, Felix, 2014. "Neighbourhood Turnover and Teenage Attainment," IZA Discussion Papers 8381, Institute for the Study of Labor (IZA).
    3. William M. Gentry & R. Glenn Hubbard, 2005. ""Success Taxes," Entrepreneurial Entry, and Innovation," NBER Chapters,in: Innovation Policy and the Economy, Volume 5, pages 87-108 National Bureau of Economic Research, Inc.
    4. Andrew Shephard, 2011. "Equilibrium Search and Tax Credit Reform," Working Papers 1336, Princeton University, Department of Economics, Center for Economic Policy Studies..
    5. Mina Baliamoune-Lutz & Pierre Garello, 2014. "Tax structure and entrepreneurship," Small Business Economics, Springer, vol. 42(1), pages 165-190, January.
    6. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    7. Ricjard Kneller & Danny McGowan, "undated". "Tax Policy and Firm Entry and Exit Dynamics: Evidence from OECD Countries," Discussion Papers 12/01, University of Nottingham, School of Economics.
    8. repec:ebl:ecbull:v:8:y:2005:i:5:p:1-6 is not listed on IDEAS
    9. Heinz Handler & Andreas Knabe & Bertrand Koebel & Margit Schratzenstaller & Sven Wehke, 2005. "The Impact of Public Budgets on Overall Productivity Growth," WIFO Working Papers 255, WIFO.
    10. Richard Kneller & Danny McGowan, "undated". "Entrepreneurship Dynamics, Market Size and Fiscal Policy," Discussion Papers 11/07, University of Nottingham, School of Economics.
    11. Kreiner, Claus Thustrup & Munch, Jakob Roland & Whitta-Jacobsen, Hans Jørgen, 2015. "Taxation and the long run allocation of labor: Theory and Danish evidence," Journal of Public Economics, Elsevier, vol. 127(C), pages 74-86.
    12. Anca Cotet, 2009. "Death And Taxes: The Impact Of Progressive Taxation On Health," Working Papers 200903, Ball State University, Department of Economics, revised Mar 2009.
    13. Andrea Asoni & Tino Sanandaji, 2014. "Taxation and the quality of entrepreneurship," Journal of Economics, Springer, vol. 113(2), pages 101-123, October.
    14. Stuart Adam & Mike Brewer & Andrew Shephard, 2006. "Financial work incentives in Britain: comparisons over time and between family types," IFS Working Papers W06/20, Institute for Fiscal Studies.
    15. Jason Taylor & Christopher Bailey, 2005. "Preferences for Government Size and their Effect on Labor-Leisure Decisions," Economics Bulletin, AccessEcon, vol. 8(5), pages 1-6.

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    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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