Barrios, S., Fatica, S., Martinez, D. & Mourre, G. (2015) “The fiscal effects of work-related tax expenditures in Europe“, European Economy. Economic Papers, Νο. 545. February: Brussels.
Work-related tax incentives can have a significant effect on how much, if at all, certain individuals decide to work. This paper examines the fiscal impacts and associated welfare costs of reforms to such tax relief measures in five European countries, France, Spain, the United Kingdom, Hungary and Slovakia. It finds that at least a quarter of the extra tax revenue raised by lowering work-related tax incentives tends to get lost, as individuals react by working less or withdrawing altogether. The revenue gain is particularly limited following the removal of tax incentives targeting the very lowest earners, which may even lead to revenue losses in some cases. Reducing work-related tax reliefs also has significant negative welfare effects.
Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.
Relevant posts:
- De Groen, P. W. (2015) “Corporate Taxation in Europe: Let’s get it together!“, Financial Markets, CEPS Commentaries, 16 February
- Auerbach, J. A. & Hassett, K. (2015) “Capital taxation in the 21st century“, VoxEU Organisation, 03 March.
- Holter, H., Krueger, D. & Stepanchuk, S. (2015) “Tax progressivity and the government’s ability to collect additional tax revenue“, VoxEU Organisation, 20 February.