Estimates of employment and welfare effects of personal labour income taxation in a flat-tax country: The case of Estonia
Karsten Staehr ()
No 2008-03, Bank of Estonia Working Papers from Bank of Estonia
This paper presents estimates of the employment and welfare effects of personal labour income taxation in Estonia. The labour supply decision of individuals is estimated based on data from the 2005 Estonian Labour Force Survey. Economic incentives are found to affect the participation decisions of individuals, but not the number of hours worked by individuals already working. The participation elasticities are higher for individuals in the middle income groups than for individuals in the low and high income groups. Increasing the proportional tax rate by 1 percentage point is found to reduce total employment by 0.35 percentage points. The baseline estimate of the marginal cost of public funds is 1.6 if the proportional tax rate is increased and 1.8 if the basic exemption is lowered. The marginal cost of public funds varies across different income groups, which may suggest possible gains in efficiency from reallocating the taxation burden of the existing system of proportional taxation. The employment and welfare estimates are subject to substantial
Keywords: taxation; labour supply; welfare; excess burden (search for similar items in EconPapers)
JEL-codes: H21 H24 J21 J22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab and nep-pbe
Date: 2008-10-30, Revised 2008-10-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
http://www.eestipank.ee/sites/eestipank.ee/files/p ... ers/2008/_wp_308.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eea:boewps:wp2008-03
Ordering information: This working paper can be ordered from
Estonia bld. 13, 15095 Tallinn, ESTONIA
Access Statistics for this paper
More papers in Bank of Estonia Working Papers from Bank of Estonia Estonia bld. 13, 15095 Tallinn, ESTONIA. Contact information at EDIRC.
Bibliographic data for series maintained by Peeter Luikmel ().