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Marginal Effective Tax Rates (METRs) across Europe

Marginal Effective Tax Rates (METRs) across Europe. Alberto Tumino. 2 nd Microsimulation Research Workshop 11 th October 2012, Bucharest Preliminary: please do not cite without author’s permission. What are METRs?.

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Marginal Effective Tax Rates (METRs) across Europe

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  1. Marginal Effective Tax Rates (METRs) across Europe Alberto Tumino 2nd Microsimulation Research Workshop 11th October 2012, Bucharest Preliminary: please do not cite without author’s permission

  2. What are METRs? • Measure the proportion of a marginal increase in earnings that is taxed away because of taxes and/or benefit withdrawal • Indicators of the work incentive on the intensive margin of labour supply • High METRs Low incentive to increase labour supply

  3. How are METRs calculated? • METRs calculation needs a microsimulation model • Calculation steps using EUROMOD: • Baseline household disposable income is calculated • The earnings of each earner in the household are increased in turn by a margin (3%) and new household disposable income calculated • Individual METRs are computed comparing the household disposable income after the increase in his/her own earnings with the baseline one

  4. How are METRs calculated?

  5. How are METRs calculated? METR101=1-[(253-250)/(206-200)]=50%

  6. A 27 country view (2007, ranked by median)

  7. A 27 country view (2007, ranked by median)

  8. A 27 country view (2007, ranked by median)

  9. A 27 country view (2007, ranked by median)

  10. Mean METRs decomposition(2007, ranked by mean)

  11. Mean METRs decomposition(2007, ranked by mean)

  12. Mean METRs decomposition(2007, ranked by mean)

  13. Mean METRs decomposition(2007, ranked by mean)

  14. Where are high METRs?

  15. Where are high METRs?

  16. Where are high METRs?

  17. 2007-2010: a comparison

  18. 2007-2010: a comparison

  19. 2007-2010: a comparison

  20. Conclusion • Wide variation of METRs across Europe • Medians and distributions • Changes between 2007 and 2010 • EUROMOD based METRs: • Great flexibility (margins and incomes) • Distributional analysis • Results representative at the population level • Breakdown by numerous perspectives • i.e. 1stvs 2nd earner, gender, age groups

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