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The Effects of Payroll Tax Caps and Payroll Tax Changes on the Distribution of Earnings

Objective

This project analyzes the effects of capped payroll taxes on the distributions of labor costs, gross and net earnings. Such payroll taxes impose a flat tax rate, divided between employee and employers, on earnings up to an earnings cap above which the marginal tax rate drops to zero. With no labor supply responses, standard theory predicts that the density distribution of labor costs (earnings inclusive of all payroll taxes) should be smooth around the cap and hence that the density distribution of net-of-tax earnings should display a discontinuity at the cap. The theory also predicts that year to year net-of-tax pay raises should be higher for workers above the payroll tax cap than for workers below the cap. Such predictions can be empirically evaluated with new microdata bases. The project also studies the individual and firm responses to payroll tax changes.

Field of science

  • /social sciences/sociology/governance/taxation

Call for proposal

FP7-PEOPLE-2007-2-1-IEF
See other projects for this call

Funding Scheme

MC-IEF - Intra-European Fellowships (IEF)

Coordinator

THE CHANCELLOR, MASTERS AND SCHOLARS OF THE UNIVERSITY OF OXFORD
Address
Wellington Square University Offices
OX1 2JD Oxford
United Kingdom
Activity type
Higher or Secondary Education Establishments
EU contribution
€ 160 091,96
Administrative Contact
Linda Polik (Ms.)