Labor Income Responds Differently to Income-Tax and Payroll-Tax Reforms

Etienne Lehmann (), François Marical and Laurence Rioux
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François Marical: INSEE - Institut national de la statistique et des études économiques (INSEE)
Laurence Rioux: CREST-INSEE - Centre de Recherche en Economie et en Statistique - INSEE - Institut national de la statistique et des études économiques (INSEE)

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Abstract: We estimate the responses of gross labor income with respect to marginal and average net-oftax rates in France over the period 2003-2006. We exploit a series of reforms to the income-tax and payroll-tax schedules affecting individuals who earn less than twice the minimum wage. Our estimate for the elasticity of gross labor income with respect to the marginal net-of-income-tax rate is around 0.2, while we find no response to the marginal net-of-payroll-tax rate. The elasticity with respect to the average net-of-tax rate is not significant for the income-tax schedule, while it is close to -1 for the payroll-tax schedule. A plausible explanation is the existence of significant labor supply responses to the income-tax schedule, combined with sticky posted wages (i.e., the gross labor income minus payroll taxes divided by hours worked). Finally, the effect of the net-of-income-tax rate seems to be driven by participation decisions, in particular those of married women.

Keywords: Labor Income; Payroll Tax; Income Tax (search for similar items in EconPapers)
Date: 2012-10-16
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00856246v1
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Related works:
Journal Article: Labor income responds differently to income-tax and payroll-tax reforms (2013)
Working Paper: Labor Income Responds Differently to Income-Tax and Payroll-Tax Reforms (2012)
Working Paper: Labor Income Responds Differently to Income-Tax and Payroll-Tax Reforms (2012)
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