Regional impact of commuter wage taxes

This paper presents a model of interurban and intraurban location that is used to consider the impact of wage taxes on housing and labor markets in a metropolitan area. The focus of the paper is to examine the differences in the regional impact of commuter wage taxes (source-based wage taxes) and residents-only wage taxes (residence-based wage taxes). The model illustrates that suburban land rent and wages can be affected in equilibrium by central city policies and that the mix of public goods (that is, whether they benefit households or firms) as well as those who bear the burden of financing them has implications regarding land values and shifts in relative population and production. Understanding such linkages is important in the creation and analysis of regional economic policy.     

Tax policy in a matching model with training

This paper develops a model of search on the labour market withtraining. We explore how the combination of an average job taxand a marginal wage tax can be used to alleviate inefficienciesin job matching and, at the same time, raise a positive revenuewith minimal distortions in search and training. We find that(i) a wage tax is less distortionary to raise revenue than isa job tax if training is not distorted initially; (ii) thisconclusion may reverse in the presence of training distortions;(iii) marginal wage taxes are less distortionary in economieswhere bargaining parties can commit to the wage profile.     

The Later You Pay,the Higher the k

This paper shows the importance of the age path (life-cycle timing) of any tax for the accumulation of capital in the economy. Income, consumption, and wage taxes differ in their age paths as well as their incentive effects. This paper studies how the differing age path of each tax affects the capital accumulation of the economy in an empirically calibrated life-cycle model. We investigate lump-sum “age” taxes and find in every case that the later the person pays tax, the higher the k of the economy. To analyze the life-cycle timing effect of conventional transactions-based taxes (income, consumption, and wage), we replace each tax with a lump-sum age tax that has the identical age path of tax payments over the life cycle. We find that the timing effect is quantitatively important and often causes the impact of a tax on capital accumulation to be very different from what would be predicted from the incentive effect.     

Contribution Ceilings and the Incidence of Payroll Taxes

Social security contributions (SSCs) are typically formally split between employers and employees as payroll taxes, levied on earnings at a constant tax rate that applies only up to a ceiling, above which the marginal tax rate falls to a reduced rate, often 0. Such contribution ceilings create a concave kink point in the budget set of workers and hence should generate a dip in the distribution of earnings around the ceiling through labour supply responses (the reverse of bunching expected at convex kink points) but such a dip is not observed empirically. This paper sets out a new approach to infer the incidence of SSCs that exploits the absence of this dip and the fact that (mechanically) the distributions of labour cost (earnings inclusive of all payroll taxes), gross earnings (net of employer payroll taxes) and net earnings (net of both employer and employee payroll taxes) cannot all be smooth around a kink. The other papers in this special issue apply the method to data for Germany, France, the Netherlands and the UK and all find that distribution of gross earnings is smooth around kinks (implying that the distributions of labour costs and net-of-tax earnings are not) even though the concept of gross earnings is irrelevant in the standard static model of labour supply and demand that dominates the public economics literature. This suggests that other features of the labour market, such as wage bargaining based on the gross earnings concept, are relevant for determining the incidence of SSCs.     

Tax Level and Tax Internalization Effects on Union Wage Bargaining

High taxes and generous social benefits are often blamed for causing unemployment. The conventional view is that if taxes on labour are (too) high, jobs will be lost and that generous social benefits will exert an upward pressure on unions' wage claims. In the case where unions co-ordinate their wage bargaining strategy, this need not be the case. A simple model is used to illustrate the effects of the tax rate level and tax internalization on unions' wage bargaining strategy. A high marginal tax rate along with endogeneity of the average tax rate shifts the union's trade-off between wages and employment in favour of the latter. These shifts may have contributed to the success of the so-called polder model or tulip model of the Netherlands.     

Inflation,wage bargaining,wage policy and production structure: Theory and empirical results for the Netherlands

Summary Starting from traditional neo-classical results, a theory is developed in which, in addition to prices, labour productivity and unemployment, the degree of unionization, the profit rate and the shifting-on of direct taxes and social security contributions influence nominal contract wages. A separate theoretical framework is constructed for wage drift.It is furthermore shown how the wage theory presented is related to Friedman-Phelps specifications. After a discussion of wage policy and its potential influence on wages, wage equations are estimated for the key bargaining sector as well as for wage followers. After their characteristics have been dealt with, as well as the effects of wage policy and the role of wage drift, the relationship between key bargaining, inflation and employment is analysed, showing that the model presented is able to explain stagflation.My thanks are due to Mr. H. von Eye for his help in carrying out the calculations and to Mr. A. de Reyger for providing me with the sectoral unionization rates and his general research assistance. Mr. A. J. van Geel kindly prepared the graphs.     

International mobility of capital,wage indexation,and the cost of policy mistakes under ambiguity: a CGE evaluation

In this paper we focus on the role institutions and structural parameters play in macroeconomic policy design and test the differential effects of tax policies on two structural parameters: the degree of international capital mobility and the rules of wage indexation practiced in the economy. We evaluate counterfactual changes in taxation in the Argentine economy using a Computable General Equilibrium (CGE) Model with unemployment, calibrated with 2006 data, showing that policy mistakes (diagnosis failures) are costlier when the degree of capital mobility is greater and the rules to determine salaries could amplify the losses. Among other taxes, we evaluate the choice of export taxation, historically one of the preferred revenue sources of Argentine governments. We discuss the choice of taxes that an optimistic and a pessimistic policymaker will make under Knightian uncertainty and find that, in the case of our CGE, an optimistic policymaker prefers to tax export goods, while a more pessimistic one tends to tax imports or non-tradable goods.     

AN OPEN SHOP, WAGE BARGAINING, AND TAXATION--A NOTE

In a social custom model of union membership with wage bargaining,higher levels of company taxes lower wages while having uncertainemployment effects. A higher marginal income tax rate increasesemployment. Changes solely in the level of income taxation,retaining marginal rates, have ambiguous wage and employmentconsequences. Endogenising union membership therefore does notalter the effects of tax changes in comparison to a right-tomanagemodel with exogenously fixed level of density.     

The minimum wage,exports, and firm performance: Evidence from Indonesia

This paper examines the interrelationship between changes in the provincial minimum wage, firms’ export behavior, and firms’ performance in Indonesia. In this regard, we apply a two-stage least squares regression analysis to detailed firm-level data of manufacturing enterprises during 2002–2014. We find that an increase in the minimum wage is associated with a decrease in a firm’s employment and productivity, but increase in its probability of exporting and markup. We also use the 2012 minimum wage reform in Indonesia to conduct a difference-in-difference analysis to further mitigate the potential endogeneity of minimum wage regulation. Our findings are generally robust to alternative estimation methods. Moreover, quantile regression results indicate that the average wage, firm size, and the education level of workers also affect the predictions. Above all, this study suggests that Indonesian exports and the country’s comparative advantage in international markets are not negligibly affected by higher labor costs caused by the growth in the minimum wage.     

Labor Taxation and FDI Decisions in the European Union

This paper uses panel data on bilateral FDI stocks in the European Union to empirically analyze the impact of labor and corporate taxations on FDI decisions. While the effect of corporate taxes on FDI is well documented, the impact of labor taxes on FDI has barely been explored. This is surprising since labor taxation may influence FDI as well; the taxation of labor affects the production cost and the ability to attract and retain productive labor, and thereby it also, ultimately, impacts the return to the investment. By employing a Heckman two-step estimation model, which controls for possible sample selection bias due to many zero bilateral observations, we find that labor taxes do influence FDI decisions.     

Estimating the Short Run Effects of South Africa's Employment Tax Incentive on Youth Employment Probabilities using A Difference‐in‐Differences Approach

South Africa's Employment Tax Incentive (ETI) came into effect on the 1st of January 2014, with the objective of reducing the substantial national youth unemployment rate. Under the ETI, firms are eligible to claim a deduction from their taxes due, for the portion of their wage bill that is paid to certain groups of youth employees. We utilise several waves of nationally representative data and implement a difference‐in‐differences methodology at the individual level, in order to identify the effects of the ETI on youth employment probabilities in the short run. Our primary finding is that the ETI did not have any statistically significant and positive effects on youth employment probabilities. The point estimate from our preferred regression is ?0.005 and the 95% confidence interval is from ?0.017 to 0.006. We also find no evidence that the ETI has resulted in an increase in the level of churning in the labour market for youth. Thus, any decrease in tax revenues that arise from the ETI are effectively accruing to firms which, collectively, would have employed as many youth even in the absence of the ETI.     

Are Older Workers Worthy of Their Pay? An Empirical Investigation of Age-Productivity and Age-Wage Nexuses

Using longitudinal employer-employee data spanning over a 22-year period, we compare age-wage and age-productivity profiles and find that productivity increases until the age range of 50?C54, whereas wages peak around the age 40?C44. At younger ages, wages increase in line with productivity gains but as prime-age approaches, wage increases lag behind productivity gains. As a result, older workers are, in fact, worthy of their pay, in the sense that their contribution to firm-level productivity exceeds their contribution to the wage bill. On the methodological side, we note that failure to account for the endogenous nature of the regressors in the estimation of the wage and productivity equations biases the results towards a pattern consistent with underpayment followed by overpayment type of policies.     

Tax Base Elasticities: A Multi-State Analysis of Long-Run and Short-Run Dynamics

We examine the relative dynamic responses of state personal tax revenues and sales tax bases to changes in state personal income. Our econometric analysis, which includes separate analyses of long-run and short-run dynamics for each state, permits the estimation of asymmetric short-run responses depending upon the relationship between current and expected tax base growth. Results indicate that the average long-run elasticity for income taxes is more than double that for sales taxes. Most states have asymmetric short-run income elasticities, which are again greater for income taxes than for sales taxes. However, a joint analysis of long- and short-run dynamics reveals that neither tax is universally more volatile. After calculating state-specific income elasticities for both taxes, we employ cross-section regression techniques to explain the variation in elasticities across states. Several policy factors are found to be important, including elements of tax bases and rate structures.     

Wage setting and tax progressivity in dynamic general equilibrium

This paper concerns the implications of progressive labor incometaxation for wage determination in dynamic general equilibrium.The main purpose is to analyze the general equilibrium effectsof increased tax progressivity in terms of the responses inthe real wage rate, employment, the capital stock, output andconsumption. Among the results, we find that increased tax progressivityincreases the real wage rate and decreases employment underboth union and competitive wage formation.     

Legal Minimum Wages and Employment Duration

We estimate the effect of minimum wages on employment duration using event history data from the 1988-1994 rounds of the National Longitudinal Survey of Youth. Existing literature takes two alternative tracks: Some studies predict reduced turnover due to rents created by minimum wages, others focus on the expected increase in turnover due to reduced job amenities and imperfect information. We find that for men, the net effect of a minimum wage depends on its magnitude relative to the typical wage in the local labor market. We find some evidence that where the minimum wage is low, separation rates for men hired at the minimum wage are reduced. We also find that as the relative value of the minimum wage rises, separation hazards increase. We interpret these findings as evidence that rents may accrue to minimum wage workers, but that the job matching process is undermined when the minimum wage binds.     

The Part-Time Wage Gap: a Career Perspective

Summary  Because promotions are an important source of wage growth, we argue that the low incidence of promotions among part-time workers will contribute to the emergence of the part-time wage gap. We test this claim using Dutch employer–employee matched data. We find that the part-time wage gap is absent among young school leavers, but that it is well established among more mature workers. Moreover, we find that promotions account for a wage growth of about eight log points. Finally, workers in part-time jobs experience a lower rate of promotion relative to workers in full-time jobs. We are grateful to the Dutch Ministry of Social Affairs and Employment for granting access to the data. The paper greatly benefited from comments by Daniel Hamermesh, Jonathan Wadsworth, and seminar participants at ZEW in Mannheim, at WPEG conference at York University and Tilburg University. We are also indebted to two anonymous referees for helpful suggestions that substantially improved the quality of the paper. The usual disclaimer applies.     

Effects of school closure on household labor supply: Evidence from rural China

This paper studies the effects of school closure on household labor supply exploiting China's large-scale rural primary school closing during the early 2000s. Using CHNS 1991–2011 and CHIP 2007–2008 datasets and a difference-in-differences approach, we find that school closure significantly increases the total annual income of mothers of primary school-aged children, which comes virtually entirely from increases in wage income, due to more participation, more working hours, and higher wage rates. This significant positive effect can plausibly be attributed to their migration responses: mothers engage in temporary rural-urban migration to care for children following school closure. We find no effects on fathers' income and migration behavior. Our study provides the first causal estimation of the impacts of school closure on household labor supply and sheds light on the migration decision-making of rural females.     

Uncertainty and Optimally Uniform Commodity Taxes

This paper examines the implications of uncertainty for the structure of optimal commodity taxes in the presence of a linear income tax. Consumers face uncertain income and commit to consumption of some goods before the resolution of uncertainty and to others after. Preferences are separable between labor and consumption goods. We prove that optimal commodity taxes are (i) uniform within the category of noncommitted goods if their subutility is logarithmic; (ii) uniform within the two categories if both subutilities are logarithmic; and (iii) nonzero across categories, with the tax rate on precommitted goods being lower than the tax rate on noncommitted goods.     

International spillover effects of consumption taxation

This paper investigates the international spillover effects of a revenue-neutral increase in consumption taxes coupled with a reduction in wage taxes in a two-country open economy. Many economists feel that the consumption tax would be an improvement over the income tax. This paper provides counterexamples to the conventional wisdom. We show that conversion to a consumption tax may reduce capital accumulation and may transmit a negative externality to the rest of the countries in the world economy under certain conditions: endogenous labor supply and bequests.