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The Total Tax on Labour Income
By Nordberg, Morten
Memorandum 5/2007
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Abstract |
In the present paper we examine the economic incentives to work for persons
receiving benefits in Norway. We take into account how the tax- and benefit systems
interact. For a large part of the population social security transfers ensure that the
income if not working is far from zero. These benefits are typically curtailed if a
person works. By including this benefit loss in the tax measure we compute what we
call “total” tax rates for all benefit claimants in Norway. We estimate that benefit
receivers on average would gain about 70 000 NOK if working full-time instead of
not working at all. The total tax rate is about 70 percent for full-time work. About 4
percent will be economically worse off if working full-time instead of not working at
all. In addition we find that the tax reform intended to improve economic efficiency
by cutting the highest marginal taxes, will worsen the economic incentives for benefit
receivers if the lower top-rates are financed by higher taxes at lower incomes. Instead
we indicate that reforms making the overall progressivity of the formal tax system
stronger would improve the incentives to work for these groups. |
| JEL Classification:
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H21, H55 |
| Keywords:
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Work incentives, Taxation, Benefit entitlements |
| Project:
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1142 Income tax, equality and efficiency
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| Financing:
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Norwegian Research Council, Economic Research Programme on
Taxation |
| Contact:
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morten.nordberg@frisch.uio.no |
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[Full Text PDF]
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