A macroeconomic approach to the income-tax work-effort relationship

Basil Dalamagas and Stelios Kotsios

International Review of Applied Economics, 2012, vol. 26, issue 3, 349-366

Abstract: In this paper, we analyse the dynamic relationship between hours worked per employee (per self-employed) and marginal income tax-rate shocks in terms of both a comparative-dynamics model and a stochastic general equilibrium econometric model. The econometric model is estimated for Germany, UK and USA over the post-1960 period using the GMM estimation technique. Estimates in both models show that increases in the marginal income-tax rate exert negative effects on hours worked by both employees and the self-employed, but the response of the employees who are subject to tax withholding is stronger than the response of the self-employed.

Date: 2012
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DOI: 10.1080/02692171.2011.580269

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