Taxation and Employment

image of Taxation and Employment

This publication examines the effects of taxation on employment, highlights the resulting policy challenges, and discusses the ways governments endeavour to address these challenges.  Chapter 1 provides a broad overview of the effects of taxation on employment, examining how taxes on labour income can affect both the size of the labour force and the level of unemployment, and highlighting key areas of concern for tax policy makers.  This analysis is then augmented in chapters 2-4 by the more detailed analysis of the effects of taxation on the employment of three groups where empirical research suggests that responses of labour supply to taxation may be relatively large: low-income workers, mobile highly-skilled workers, and older workers.  As well as highlighting key areas of concern for tax policy makers, the report places a particular focus on the different measures that have been adopted by countries to attempt to overcome these problems, discussing, where possible, the main design features, and the advantages and disadvantages of the different approaches that have been adopted.



The Taxation of Low-Income Workers

Chapter 1 emphasised the low employment rates amongst low-income workers compared to higher-income workers in many OECD countries.1 This difference is driven by both lower participation and greater (involuntary) unemployment than in higher-income groups. This chapter considers both factors, though the predominant focus is on the participation side, examining both the causes of the low supply of labour by low-income workers, and the ways in which OECD countries attempt to address this concern.


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