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Work motivation effects of tax change proposals on employees
Kalíšková, Klára ; Münich, Daniel ; Šoltés, Michal
In this study, we analyse the impact of the changes to taxes and compulsory contributions for employees as proposed in the government's consolidation package unveiled in May 2023. We also look in detail at the impact of the restrictions on the low-income spouse allowance. While existing analyses focus primarily on quantifying redistributive effects and the impact on tax revenue, our analysis also looks at the transformation of incentives to work, i.e., incentives to work or not work and incentives to work more or less. We show how the proposal will change average, marginal and participation tax rates. While the average tax rate tells us about the tax burden on income and how much of the cost of labour is paid in taxes and levies, the other two indicators are related to the incentive to work. The marginal tax rate describes the incentive to work more or fewer hours, and the participation tax rate the incentive to participate in (or leave) the labour market. We thus provide an ex ante analysis of the expected effects of the government package on the tax rates of different groups of the population and their work motivation. Ex post analysis of the behavioural effects of this package, i.e. its impact on labour market participation or the number of hours worked, is naturally not possible before the actual implementation of the tax measures.
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