Marginal Taxes: A Good or a Bad for Wages?: The Incidence of the Structure of Income and Labor Taxes on Wages

Pia Rattenhuber

No 1193, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Empirical evidence so far found ambiguous results for the direction of effect of marginal income tax rates on employee remuneration. Based on the GSOEP data from 2002 through 2008 this study analyzes the impact of the marginal tax load on the employee side on the wage rate also allowing average tax rates and employer payroll taxes to play a role. Instrumental variable estimation based on counterfactual tax rates simulated in a highly detailed microsimulation model (STSM) heals the endogeneity problem of the tax variables with regard to wages. Estimations in first differences show that marginal taxes overall have a negative impact on wages. But this effect is not uniform along the wage distribution; while the negative effect of marginal tax rates prevails in the lower part of the distribution, observations beyond the median benefit from higher tax rates at the margin.

Keywords: Marginal tax rates; tax structure; simulated instrumental variables (search for similar items in EconPapers)
JEL-codes: C26 H22 H24 (search for similar items in EconPapers)
Pages: 34 p.
Date: 2012
New Economics Papers: this item is included in nep-acc, nep-lab, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1193

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