| 来源类型 | Report |
| 规范类型 | 报告 |
| Tax Effects on Work Activity, Industry Mix and Shadow Economy Size | |
| Steven J. Davis; Magnus Henrekson | |
| 发表日期 | 2004-12-02 |
| 出版年 | 2004 |
| 语种 | 英语 |
| 摘要 | The full text of this paper is available here as an Adobe Acrobat PDF. Abstract Guided by a simple theory of task assignment and time allocation, we investigate the long run response to national differences in tax rates on labor income, payrolls and consumption. The theory implies that higher tax rates reduce work time in the market sector, increase the size of the shadow economy, alter the industry mix of market activity, and twist labor demand in a way that amplifies negative effects on market work and concentrates effects on the less skilled. We also describe conditions whereby cross-country OLS regressions yield consistent estimates of the total effect of taxes, inclusive of indirect effects that work through government spending responses to tax revenues. Regressions on rich-country samples in the mid 1990s indicate that a unit standard deviation tax rate difference of 12.8 percentage points leads to 122 fewer market work hours per adult per year, a drop of 4.9 percentage points in the employment-population ratio, and a rise in the shadow economy equal to 3.8 percent of GDP. It also leads to 10 to 30 percent lower employment and value added shares in (a) retail trade and repairs, (b) eating, drinking and lodging, and (c) a broader industry group that includes wholesale and motor trade. Introduction Taxes on labor income and consumption expenditures encourage households to substitute away from the legal market sector in favor of untaxed activities–leisure, household production, and the shadow economy. We investigate these substitution responses by relating measures of employment, market work hours, shadow economy size, and the industry mix of market production activity to tax rate differences among rich countries. Our objective is to assess the long run total response of these outcomes to persistent differences in tax rates on labor income, payrolls and consumption–collectively, personal taxes. By “total response,” we mean the direct effects that work through labor supply and demand plus indirect effects that involve government spending responses to available tax revenues. As in Brennan and Buchanan (1980), Krusell et al. (1996), Persson and Tabellini (2002) and Becker and Mulligan (2003), we recognize that taxing capacity affects government expenditures. In turn, many expenditure programs affect labor supply incentives. Leading examples include government programs for unemployment and disability insurance. Our sample of rich countries offers a modest number of data points. Despite this limitation, the broad-brush comparisons that we undertake are useful for several reasons. First, a focus on national outcomes provides information about the combined effect of taxes working through labor supply and labor demand channels. In this regard, we stress that tax effects on hours worked and other outcomes cannot be inferred from labor supply elasticities alone. Our theory of task assignment implies that personal taxes have disproportionately large effects on the demand for less skilled workers. By most accounts, labor supply is also more elastic for less skilled workers. So, as personal taxes twist labor demand away from less skilled workers, their negative effects on work hours and employment are amplified. Second, countries with high tax rates on labor and consumption have relatively generous tax funded programs for social security, disability insurance, sick leave assistance, unemployment insurance and general assistance. The benefit sides of these programs alter labor supply incentives in ways that discourage market work activity, increase employment in the underground economy and alter the industry mix of market production activity. Insofar as government spending on these programs responds to the availability of tax revenues, the full response to differences in taxing capacity includes the indirect effects that work through the expenditure side of government behavior. Conceivably, the indirect expenditure effects on the outcome variables under study are larger than the direct effects of taxes. Third, there are large, highly persistent differences among countries in tax rates on labor and consumption and in the scale of tax-funded social insurance programs. This variation partly compensates for a modest number of data points. Moreover, labor market responses to persistent tax rate changes are probably bigger over the longer term, as imperfectly mobile factors of production migrate between sectors and activities in the wake of tax changes, and as slow-working welfare-state dynamics come into play. The persistent character of national differences in personal tax rates makes them well suited for assessing long run effects. These remarks suggest that national comparisons help to inform our thinking about the effects of taxes and taxing capacity. The evidence provides useful inputs for assessing the performance of economic theory and the success or failure of public policy, tax policy in particular. In this regard, Prescott (2002, 2003) argues that French welfare would rise by 19 percent in consumption-equivalent terms, if France lowered its labor and consumption taxes to U.S. levels. He bases this assessment on the cross-country empirical relationship among taxes, factor inputs and output per working-age person, as interpreted through the lens of a standard one-sector growth model. If Prescott’s assessment is correct, France and many other nations bear enormous costs for high tax rates on labor and consumption. In terms of Prescott’s framework and analysis, our study is useful for two reasons. First, the view that France’s relatively high tax rates cause its relatively low output per working-age person suggests other hypotheses that we address. Evidence on these hypotheses serves to support, qualify or undermine Prescott’s conclusion. Second, more detailed evidence about whether and how personal taxes affect work time and productive activity provides inputs for improved model-building and more refined policy analysis. Before proceeding, it will be useful to spell out some conventions regarding terminology. For our purposes, “market production” refers to output produced and incomes generated in legal markets, and which are declared to the government and captured in the National Income and Product Accounts. The “shadow” or “underground” economy refers to the output and incomes generated in markets, but which are not declared to the government, particularly the taxing authorities. “Household production” refers to output produced for own consumption, as distinct from output produced and sold in formal or informal markets. “Leisure” refers to the time devoted to rest and intrinsically enjoyable activities that are otherwise non-productive. In line with this terminology, we think of household time as allocated among market production, underground production, household production and leisure. The paper proceeds as follows. Section 2 provides background on the household and underground production sectors and additional motivation for our focus on long run effects. Section 3 sketches a theory of task assignment and time allocation between market and non-market production sectors. The theory identifies characteristics of production technologies and factor inputs that lead to high or low tax responsiveness. Since these characteristics differ markedly across industries, the theory yields testable implications for the cross-country relationship between personal taxes and industry shares of employment and value added. Section 4 describes conditions whereby OLS regressions yield consistent estimates for the total response to tax rate differences among countries. Section 5 describes the data in our sample of rich countries, and Section 6 reports evidence on the cross-country relationship of personal tax rates to the outcome measures. Section 7 reviews other evidence that speaks to the long run total response to personal taxes, and Section 8 concludes. The full text of this paper is available here as an Adobe Acrobat PDF. |
| 主题 | Public Economics |
| URL | https://www.aei.org/research-products/report/tax-effects-on-work-activity-industry-mix-and-shadow-economy-size/ |
| 来源智库 | American Enterprise Institute (United States) |
| 资源类型 | 智库出版物 |
| 条目标识符 | http://119.78.100.153/handle/2XGU8XDN/204865 |
| 推荐引用方式 GB/T 7714 | Steven J. Davis,Magnus Henrekson. Tax Effects on Work Activity, Industry Mix and Shadow Economy Size. 2004. |
| 条目包含的文件 | ||||||
| 文件名称/大小 | 资源类型 | 版本类型 | 开放类型 | 使用许可 | ||
| 20060222_DavisandHen（569KB） | 智库出版物 | 限制开放 | CC BY-NC-SA | 浏览 | ||
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