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 Older Workers

As illustrated in Chapter 1, employment rates of older workers are substantially lower than for younger workers. This difference is driven predominantly by the relatively low labour force participation of older workers, although unemployment is also a factor in relation to some groups of older workers. This chapter considers both factors, though it’s primarily focus is on the participation side, considering both the effect of tax on the work incentives of older workers, and possible ways of increasing these work incentives.


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