High unemployment in many European OECD countries has been attributed to factors ranging from rigid wages and low job mobility to an interaction of high taxes and generous social benefits that may discourage labor force participation and encourage the growth of an underground economy. This CESifo volume analyzes the effect of tax policy and, more generally, welfare state incentives, on the performance of the labor market. The contributors, all leading international economists, take both theoretical and empirical approaches; the book includes general overviews as well as in-depth analyses of specific policies.Some chapters take a broad perspective on taxation and labor markets, considering such topics as the effects of taxes in both the conventional model of a competitive labor market and a more realistic imperfect market, the observed work differentials between Europe and the United States, and the potential for progressive taxes and redistributive benefits to boost employment. Other chapters examine the effects of tax reforms, including the Earned Income Tax Credit, and the wage-increasing effects of progressive income taxes in a highly unionized labor market. Finally, the contributors analyze the effects of employment protection and tax penalties on the growth of the underground economy. The insights offered in these studies will be valuable to the policy analyst as well as to the academic theorist.Contributors:Jonas Agell, Dan Anderberg, Søren Arnberg, A. Lans Bovenberg, Nada Eissa, Anders Holm, Hilary Hoynes, Henrik Jacobsen Kleven, Ann-Sofie Kolm, Birthe Larsen, Stephen Nickell, Peter Birch Sørensen, Frederick van der Ploeg, Claus Thustrup Kreiner, Torben Tranæs
Today's highly complicated tax codes have led economists and policy makers depend on simplified summary measures in order to understand how taxes affect the economy. Studies of the effective tax rate—that is, a measurement of the net amount of tax levied on certain economic activities—provide this sort of descriptive summary. Using estimates of effective tax rates, economists can look for evidence of economic behavior under different tax laws and policy makers can evaluate whether the net outcome is in accord with their intentions. Globalization, with its accompanying international mobility of capital and labor, has created a new use for estimates of the effective tax rate as policy makers seek to compare tax burdens in one country with those in another.
This book provides an overview of the most important methods currently used to measure effective tax rates, highlighting the advantages and disadvantages of the different approaches and illustrating their use with specific case studies. The contributors, all noted international economists and seasoned policy makers, consider such topics as a new method to measure the effective tax rate on investment, the tax burden on cross-border investment, effective tax rates on human capital, the "Taxing Wages" approach, and measurement at the macro and micro levels.