Improving work incentives: evaluation of tax policy reform using SRMOD

Jelena ZÌŒarkovicÌ RakicÌ and RanÄ‘elovicÌ , SasÌŒa

No EM11/12, EUROMOD Working Papers from EUROMOD at the Institute for Social and Economic Research

Abstract: Inactivity and unemployment rates as well as informal employment rates in Serbia are particularly high among low-paid labor. Labour tax wedge is average at higher wage levels, but high at lower wage levels. The relatively high labour tax burden for low-paid employees is due to several reasons. The most important one is the existence of mandatory minimum base for social security contribution (SSC). This paper uses the tax and benefit micro-simulation model for Serbia (SRMOD), which is based upon EUROMOD platform, in order to evaluate the effects of the abolishment of mandatory minimum SSC base on labour supply incentives. We found that this policy reform would reduce effective average tax rates by more than it would reduce marginal tax rates implying a larger participation response than hours-of-work response. A decrease in both tax rates is most pronounced for lower income groups.

Date: 2012-12-20
New Economics Papers: this item is included in nep-acc, nep-cmp, nep-hrm, nep-iue and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:ese:emodwp:em11-12

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