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Tax-benefit systems and differences in aggregate labour force participation: Comparative evidence from the Czech Republic and Hungary

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  • Galuščák, Kamil
  • Kátay, Gábor

Abstract

This paper investigates the extent to which cross-country differences in aggregate participation rates can be explained by differences in tax-benefit systems. We take the example of two countries, the Czech Republic and Hungary, which – despite a lot of similarities – differ markedly in labour force participation rates. Using comparable individual-level labour supply estimates, we simulate how the aggregate participation rate would change in one country if the other country’s tax and social welfare system were adopted. The estimation results for the two countries are quite similar, suggesting that individual preferences are essentially identical in the two countries. The simulation results show that about one-third of the difference in the participation rates of the 15–74 year-old population and more than two-thirds of the participation of the prime-age population can be explained by differences in the tax-benefit systems.

Suggested Citation

  • Galuščák, Kamil & Kátay, Gábor, 2019. "Tax-benefit systems and differences in aggregate labour force participation: Comparative evidence from the Czech Republic and Hungary," Economic Systems, Elsevier, vol. 43(3).
    • Handle: RePEc:eee:ecosys:v:43:y:2019:i:3:s0939362518300669
    DOI: 10.1016/j.ecosys.2019.100701
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    More about this item

    Keywords

    Cross-country comparison; Labour supply; Microsimulation; Participation rate; Tax-benefit systems;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • P50 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - General

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