TY  - RPRT
        AU  - Koskela, Erkki
AU  - Schöb, Ronnie
        TI  - How Tax Progression Affects Effort and Employment
        PY  - 2007/Jun/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 2861
        UR  - https://www.iza.org/publications/dp2861
        AB  - Within an efficiency wage framework, we study the effects of two revenue-neutral tax reforms that change the progressivity of the labour tax system. A revenue-neutral increase in both the wage tax and tax exemption and a revenue-neutral change in the composition of labour taxation towards the tax with the smaller tax base will lead to the same results: they moderate wages, workers’ effort, effective labour input and aggregate output. Whether employment rises or falls, however, depends in both reforms on the magnitude of the pre-reform total tax wedge. The larger this tax wedge is, the more negative is the impact of reforms on workers’ effort. A larger total tax wedge increases the negative effect of tax progression on labour productivity and thus thwarts the positive employment effect of wage moderation.
        KW  - tax progression
KW  - structure of labour taxation
KW  - efficiency wages
        ER  -