The Impact of Short- and Long-Term Participation Tax Rates on Labor Supply

Charlotte Bartels and Nico Pestel

No 9151, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Generous income support programs as provided by European welfare states have often been blamed to hamper employment. This paper investigates the importance of incentives inherent in the tax-benefit system for the individual decision to take up work. Using German microdata over the period 1993-2010 we find that recent reforms in Germany increased work incentives at the extensive margin measured by the Participation Tax Rate (PTR), particularly for low-income individuals. Work incentives are even higher if the time horizon is extended to more than one year, pointing at an overestimation of the disincentives by standard measures. Regression analysis reveals that a decrease in the PTR increases the likelihood of taking up work significantly.

Keywords: welfare; work incentives; labor force participation; unemployment insurance; income taxation (search for similar items in EconPapers)
JEL-codes: H24 H31 J22 J65 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2015-06
New Economics Papers: this item is included in nep-eur, nep-ias, nep-lab, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published - revised version published as 'Short- and Long-term Participation Tax Rates and Their Impact on Labor Supply' in: International Tax and Public Finance, 2016, 23(6), 1126-1159

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Related works:
Working Paper: The Impact of Short- and Long-Term Participation Tax Rates on Labor Supply (2015)
Working Paper: The impact of short- and long-term participation tax rates on labor supply (2015)
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