Working Paper: NBER ID: w9226
Authors: William M. Gentry; R. Glenn Hubbard
Abstract: We examine whether the level of the income tax rate and the convexity of the income tax schedule affect job mobility, as measured by moving to a better job. While the predicted effect of the level of the tax rate is ambiguous, we predict that an increase in the convexity of the tax schedule decreases job search activity by taxing away some of the benefits of a successful job search. Using data from the Panel Study of Income Dynamics, we estimate that both higher tax rates and increased tax rate progressivity decrease the probability that a head of household will move to a better job during the coming year. Our estimates imply that a five-percentage-point reduction in the marginal tax rate increases the average probability of moving to a better job by 0.79 percentage points (a 8.0 percent increase in the turnover propensity) and that a onestandard- deviation in our measure of tax progressivity would increase this probability by 0.86 percentage points (a 8.7 percent increase in the turnover propensity).
Keywords: No keywords provided
JEL Codes: H3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher tax rates (H29) | Decrease in the probability of moving to a better job (J62) |
| Reduction in marginal tax rate (H31) | Increase in the probability of moving to a better job (J62) |
| Decrease in tax progressivity (H29) | Increase in the probability of moving to a better job (J62) |
| Increased tax rate progressivity (H29) | Decrease in the probability of moving to a better job (J62) |