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Indicators of Unemployment and Low-Wage Traps: Marginal Effective Tax Rates on Employment Incomes


  • Giuseppe Carone
  • Herwig Immervoll
  • Dominique Paturot
  • Aino Salomäki


This paper presents results from an on-going joint European Commission / OECD project, aimed at monitoring the direct influence of tax and benefit instruments on household incomes. The project uses and extends OECD tax-benefit models to compute a range of work incentive indicators such as marginal effective tax rates on earned income. This paper provides a methodological background describing these extensions. It also discusses the usefulness of a range of indicators such as net replacement rates and marginal effective tax rates and to what extent they can be used to quantify possible work disincentives. The approaches are illustrated using detailed tax-benefit calculations for 2001 and comparing relevant indicators across 15 EU and 8 non-EU countries. The results presented in this paper permit the identification of family circumstances where (1) financial incentives to increase work are either small or missing altogether; or (2) resources provided by social transfers may be ... Cette étude présente les résultats d’un projet commun Commission européenne/OCDE qui vise à faire apparaître l’impact direct des mécanismes fiscaux et de prestations sur le revenu des ménages. Le projet utilise, en les élargissant, les modèles fiscalité-prestations de l’OCDE pour calculer divers indicateurs de l’incitation à l’activité tels que le taux marginal effectif d’imposition des revenus du travail. Cette étude donne, par ailleurs, des indications méthodologiques sur la façon dont il a été procédé. On examine aussi la pertinence de différents indicateurs tels que le taux de remplacement net et le taux marginal effectif d’imposition, et on cherche à voir dans quelle mesure ils peuvent permettre de mesurer d’éventuels effets décincitatifs vis-à-vis de l’activité. A des fins d’illustration, on présente des calculs détaillés impôts-prestations pour 2001 et on procède à des comparaisons d’indicateurs pertinents dans les 15 pays de l’UE et 8 pays non membres de ...

Suggested Citation

  • Giuseppe Carone & Herwig Immervoll & Dominique Paturot & Aino Salomäki, 2004. "Indicators of Unemployment and Low-Wage Traps: Marginal Effective Tax Rates on Employment Incomes," OECD Social, Employment and Migration Working Papers 18, OECD Publishing.
  • Handle: RePEc:oec:elsaab:18-en
    DOI: 10.1787/137550327778

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    Cited by:

    1. Alina ARSĂNI & George ȘTEFAN & Anca PARASCHIV-GHERMAN, 2017. "Exports in the European Union sub-models. Determinants and performances," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 109-126, Spring.
    2. Andreas Knabe & Ronnie Schöb, 2013. "Subsidizing extra jobs: promoting employment by taming the unions," Oxford Economic Papers, Oxford University Press, vol. 65(4), pages 807-831, October.
    3. Karl Aiginger & Kurt Kratena & Margit Schratzenstaller & Teresa Weiss, 2014. "Moving Towards a New Growth Model. WWWforEurope Deliverable No. 3," WIFO Studies, WIFO, number 47247, July.
    4. Aleksandra Anić & Gorana Krstić, 2017. "Are The Unemployed And Inactive Financially Trapped? Evidence From Serbia," Economic Annals, Faculty of Economics, University of Belgrade, vol. 62(214), pages 87-106, June - Se.
    5. Eichhorst, Werner & Feil, Michael & Braun, Christoph, 2008. "What have we learned? Assessing labor market institutions and indicators," IAB-Discussion Paper 200822, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    6. Tine Hufkens & Linde Buysse & Natascha Van Mechelen & Gerlinde Verbist, 2017. "Fit for the labour market? An effort to reduce inactivity traps in the transition from benefit to work in the Belgian sickness and disability system," Working Papers 1711, Herman Deleeck Centre for Social Policy, University of Antwerp.
    7. Angelo Marano & Carlo Mazzaferro & Marcello Morciano, 2012. "The strengths and failures of incentive mechanisms in notional defined contribution pension systems," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 71(1), pages 33-70, October.
    8. International Monetary Fund, 2016. "Republic of Croatia: Selected Issues," IMF Staff Country Reports 2016/188, International Monetary Fund.
    9. Kamil Galuscak & Jan Pavel, 2007. "Unemployment and Inactivity Traps in the Czech Republic: Incentive Effects of Policies," Working Papers 2007/9, Czech National Bank.
    10. Alina ARSĂNI & George ȘTEFAN & Anca PARASCHIV-GHERMAN, 2017. "Exports in the European Union sub-models. Determinants and performances," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 109-126, Spring.
    11. Figari, Francesco & Paulus, Alari & Sutherland, Holly, 2014. "Microsimulation and policy analysis," ISER Working Paper Series 2014-23, Institute for Social and Economic Research.
    12. Ms. Anita Tuladhar & Mr. Philippe Egoume Bossogo, 2006. "Tax, Welfare, and Pension Reforms in Slovenia: Implications for Work Incentives and Labor Participation," IMF Working Papers 2006/298, International Monetary Fund.
    13. Jekaterina Navicke & Romas Lazutka, 2016. "Work incentives across the income distribution and for model families in Lithuania: 2005-2013," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 16(2), pages 175-191.
    14. Bernard Michael Gilroy & Julia Günthner, 2017. "The German Precariat and the Role of Fundamental Security - Is the Unconditional Basic Income a Possible Solution for the Growing Precarity in Germany?," Working Papers CIE 109, Paderborn University, CIE Center for International Economics.
    15. Kamil Galuscak & Jan Pavel, 2012. "Taxes and Benefits: Work Incentive Effects of Policies," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(1), pages 27-43, February.
    16. H. Xavier Jara & Alberto Tumino, 2013. "Tax-benefit systems, income distribution and work incentives in the European Union," International Journal of Microsimulation, International Microsimulation Association, vol. 1(6), pages 27-62.
    17. Bachmann, Ronald & Beimann, Boris & Bredtmann, Julia & David, Peggy & Ehlert, Christoph & Kassenböhmer, Sonja & Schaffner, Sandra & Siemers, Lars, 2011. "Studies on flexicurity Lot 1: Study on various aspects of labour market performance using micro data from the European Union statistics on income and living conditions (EU-SILC). Contract No. VC/2010/," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 72620.
    18. Janneke Plantenga, 2014. "Searching for Welfare, Work and Gender Equality. WWWforEurope Working Paper No. 59," WIFO Studies, WIFO, number 47212, July.
    19. Luigi, Bernardi, 2011. "Economic crisis and taxation in Europe," MPRA Paper 31007, University Library of Munich, Germany.
    20. Kamila Fialová & Martina Mysíková, 2009. "Labour Market Participation: The Impact of Social Benefits in the Czech Republic and Selected European Countries," Prague Economic Papers, Prague University of Economics and Business, vol. 2009(3), pages 235-250.
    21. Navicke, Jekaterina & Lazutka, Romas, 2015. "Work incentives at the bottom of the income distribution and for model families in Lithuania," EUROMOD Working Papers EM14/15, EUROMOD at the Institute for Social and Economic Research.
    22. European Commission, 2010. "Tax Policy after the Crisis: Monitoring Tax Revenues and Tax Reforms in EU Member States 2010 Report," Taxation Papers 24, Directorate General Taxation and Customs Union, European Commission.
    23. Andreas Bergh, 2006. "Is the Swedish Welfare State A Free Lunch?," Econ Journal Watch, Econ Journal Watch, vol. 3(2), pages 210-235, May.
    24. Primoz Dolenc & Milan Vodopivec, 2005. "Does work pay in Slovenia?," Financial Theory and Practice, Institute of Public Finance, vol. 29(4), pages 341-362.

    More about this item

    JEL classification:

    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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