Earnings responses to payroll and income taxes
Exploiting variation in Dutch pension rates
Nicole Bosch (CPB Netherlands Bureau for Economic Policy
Analysis)
Casper van Ewijk (University of Amsterdam, CPB, Netspar)
Maja Micevska Scharf (University of Amsterdam)
Comments:
Seth H. Giertz -- University of Texas at Dallas
Hypotheses on Behavioral Responses
• Why might pension rate elasticities differ from other tax
elasticities?
o Pension rates may be directly tied to future benefits
• Information on expected rates of return could be
presented
o Do the plans convey a tax preference?
» If so, and if actuarially fair, they may induce
positive income responses for many workers
o Are their redistributive elements to the plans?
• Should an income effect be included for the pension
component, if taxes are tied to future benefits?
• One might expect private savings to decline in response to
increases in pension rates (Chetty, et al., 2014)
S. Giertz
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Identification Strategy
• Secular divergence in income trends and tax rate changes
correlated with income
o A problem in much of the literature (especially for the US)
o Is it an issue here? Maybe not. Income and tax rate trends
could be presented.
o If base-year income controls are included, they should also
be instrumented using lags (Weber, 2014)
• Three-year differences:
o Yields a combination of short- and medium-run responses
(Weber, 2014)
S. Giertz
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Identification Strategy
• Is their a good ”control” group or sector?
o If so, graphs could compare income trends? Are they parallel
when rates are not changing?
o What is happening with general tax rates not associated
with pensions?
• For workers, is industry/sector selection random or a function
of pension rules?
S. Giertz
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Pension Rate Changes & Expectations?
• Most of the variation does not appear to be from one-time shifts
in pension rates, but from large year-to-year fluctuations.
S. Giertz
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Institutional Details
• How are pension rules set (for each sector)?
• Administrative issues
• How difficult is it to avoid these taxes?
o In the US payroll taxes are difficult to avoid (without
altering labor supply) – except for the self-employed
• Is there heterogeneity in the ability to respond that could
be exploited?
S. Giertz
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More Details on Key Variables
• How are labour costs defined?
o Is this the pre-tax wage? Or, does include fringe benefits
and/or employer-provided costs?
• How are hours measured?
• Can structural attempts at redistribution be distinguished from
incidence?
o For example, are pension benefit formulae redistributive?
• Can an hours equation be added to asses the margin of
response?
o This could also be used to assess incidence by plugging
labor supply elasticity estimates into the standard incidence
formula (using assumed values for the demand elasticity)
S. Giertz
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