Tax effects on work activity, industry mix and shadow economy size
Subtitle: Evidence from rich-country comparisons
By: Steven J. Davis, Magnus Henrekson.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10509; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10509.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Taxation -- Rates and tables -- Case studies.; Labor productivity -- Case studies.; Industrial productivity -- Case studies.; Informal sector (Economics) -- Case studies.
Genres: Case studies.
Description: "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 unbiased 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"--National Bureau of Economic Research web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/11/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.