| By: |
Gilbert Mbara (University of Warsaw);
Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland);
Ryszard Kokoszczynski (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland) |
| Abstract: |
We develop a dynamic general equilibrium model in which firms may evade the
employer contribution component of social security taxes by offering some
workers secondary contracts. We calibrate the model to data from the United
States and EU-14 countries and obtain estimates of the secondary labor market
participation consistent with empirical evidence. We then investigate the
optimal mix of the avoidable and unavoidable components of labor taxes and
analyze the fiscal and macroeconomic effects of bringing the composition to
the welfare optimum. We find that partial labor tax evasion makes tax revenues
more elastic, but full tax compliance need not be a welfare enhancing policy
mix. Relating to the highly cited work of Trabandt and Uhlig (2011), we extend
their framework to analyze the phenomenon of non-standard employment. We
distinguish between avoidable and unavoidable labor taxation -- the former may
be evaded by firms if they formulate a contract with a worker as a
non-standard employment contract and may be associated with employers' share
in labor taxation. The latter is paid by worker--households. Our results
enrich the intuition about the optimal mix of the two types of labor taxation.
We show that in countries where the share of avoidable labor taxes is
relatively low, substantial welfare gains can be achieved by changing the mix
of the two types of labor taxes. The gains emanate from higher labor supply
and consumption which accompanies modest increases in secondary employment.
These gains are obtained without loss to aggregate fiscal revenue. In addition
to these main results, we also show that plausible estimates of the levels of
tax evasion, the efficiency of tax auditing and the shares of secondary
employment can be obtained from aggregate tax revenue data. |
| Keywords: |
Laffer curve, tax evasion, labor market duality |
| JEL: |
H26 H3 E13 E26 J81 |
| Date: |
2017 |
| URL: |
http://d.repec.org/n?u=RePEc:war:wpaper:2017-12&r=iue |