Working Paper: NBER ID: w21358
Authors: Casey B. Mulligan
Abstract: This paper measures the 2007-13 evolution of employment tax rates in the U.K. and the U.S., especially as they are influenced by changes in tax and safety net benefit rules. The magnitudes of the U.S. changes are greater, in the direction of taxing a greater fraction of the value created by employment, and primarily achieved with changes in implicit tax rates. Even though both countries implemented temporary “fiscal stimulus,” their tax rate dynamics were different: the U.S. stimulus increased rates whereas the U.K. stimulus reduced them. The U.K. later increased the tax on employment during its so-called “austerity” period. Employer-cost dynamics are also different in the two countries. The tax rates calculated in this paper are a first ingredient for cross-country comparisons of labor market and fiscal policy dynamics during and after the financial crisis.
Keywords: fiscal policy; employment tax rates; labor market; UK; US
JEL Codes: E24; H31; I38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Changes in employment tax rates in the US during the fiscal stimulus period (H29) | Increase in tax burden on employment (H22) |
| Increase in tax burden on employment (H22) | Reduction in incentives for individuals to seek work (H31) |
| Temporary reduction in value-added tax and basic income tax rates in the UK (H25) | Enhancement of employment incentives (J68) |
| Increase in payroll and value-added tax rates during the austerity period in the UK (E65) | Countering of employment incentives (J68) |
| Fiscal policies in both the US and UK (E62) | Reduction in average incentives to be employed (J65) |