26. Oktober 2016

Cluster-Seminar Öffentliche Finanzen und Lebenslagen

Work Incentives in Europe: The Effect of Participation Tax Rates on Employment Decisions


26. Oktober 2016
12:30 - 13:30


DIW Berlin im Quartier 110
Room 5.2.010
Mohrenstraße 58
10117 Berlin


Cortnie Anne Shupe

Many advanced economies implemented labor market reforms over the past decades in order to encourage higher labor force participation rates. In this paper, we measure work incentives inherent in tax-benefit systems by computing Participation Tax Rates (PTRs) across the EU and subsequently identify the impact of these disperse PTRs on the probability of employment. We find that higher PTR-levels are negatively associated with the probability of being employed, i.e., higher work incentives increase the participation probability. The effect is larger for women than men. We estimate an average participation elasticity for women of 0.08 and 0.06 for men.