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A Simulation Method to Measure the Effective Tax Rate on Highly Skilled Labor

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  • Christina Elschner
  • Robert Schwager

Abstract

A model is presented for simulating the level of taxes imposed on highly skilled labor. The effective average tax rate, defined as the relative wedge between employment costs and disposable income, is computed. Income and payroll taxes and social security contributions not yielding an equivalent benefit are taken into account. The compensation package consists of cash payments and old-age provision. To integrate retirement benefits and their tax treatment, an intertemporal approach is used. The results indicate a wide dispersion of effective tax rates across Europe and the U.S. Slovakia, Switzerland and the U.S. taxhighly skilled labor at a low rate. Scandinavian countries, Belgium, and Slovenia turn out to be high-tax countries.

Suggested Citation

  • Christina Elschner & Robert Schwager, 2007. "A Simulation Method to Measure the Effective Tax Rate on Highly Skilled Labor," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(4), pages 563-582, December.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200712)63:4_563:asmtmt_2.0.tx_2-m
    DOI: 10.1628/001522107X269023
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    References listed on IDEAS

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    1. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(2), pages 107-126, March.
    2. Sascha O. Becker & Andrea Ichino & Giovanni Peri, 2004. "How Large Is the "Brain Drain" from Italy?," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 63(1), pages 1-32, April.
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    Cited by:

    1. Fischer, Leonie & Heckemeyer, Jost H. & Spengel, Christoph & Steinbrenner, Daniela, 2021. "Tax policies in a transition to a knowledge-based economy: The effective tax burden of companies and highly skilled labour," ZEW Discussion Papers 21-096, ZEW - Leibniz Centre for European Economic Research.
    2. Sophia Delipalla, 2009. "Tobacco Tax Structure and Smuggling," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(1), pages 93-104, March.
    3. Jan Vlachý, 2017. "Analýza daňových systémů středoevropských zemí pomocí statistické simulace [An Analysis of Central European Tax Systems Using Statistical Simulation]," Politická ekonomie, Prague University of Economics and Business, vol. 2017(4), pages 410-423.

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    More about this item

    Keywords

    income tax; highly skilled labor; effective tax burden; pensions;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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