Page 22 - ePaper
P. 22
Employment and Social Developments in Europe 2014
36
stimulate employment creation ( ). The Chart 12: Tax wedge on low-income earners and the employment
benefits could be particularly high if tax rate of low-skilled
reductions were targeted at the most vul - 10
nerable groups in the labour market, while DE
recognising that the outcome might dif- 5
fer significantly between Member States RO
depending on their characteristics and the 0 MT
composition of their workforce. Change in employment rate low-skilled (pps, '08-'13) UK SE LT CZ AT BE EE PL IT SK HU
The optimal design of tax shifts from both -5 NL BG FI FR EU LU LV
an employment policy and social policy SI
perspective is a complex task, requiring -10 DK PT
distributional impacts to be addressed. EL ES IE
For example, the regressive effects of -15 -3 0 3 6
substituting VAT for labour taxes can Change in tax wedge low-income earners (pps, '08-'13)
be mitigated by compensating targeted Source: OECD Taxing Wages, Eurostat, lfsa_ergaed.
groups (unemployed, retirees) and by Note: Tax wedge: single earner, earning 67 % of the average wage. Low-skilled: ISCED levels 0-2.
focusing on standard rather than reduced
37
rates and exemptions ( ). Similarly, green
taxes linked to car ownership represent Undeclared work Various features of the current labour
a lower tax burden for the lower income market and social situation are likely
groups than taxes on heating and energy, Undeclared work is categorised as paid to have been conducive to the growth
and a proper taxation of imputed rent has activity that is lawful in itself, but not of informal work, such as the increas-
40
socially favourable effects. declared to public authorities ( ). The ing length of unemployment spells, the
existence of undeclared work distorts situation of relatively disadvantaged
The desirability of some tax shifts could the evidence on job creation in so far as groups, and the pressure on wages and
also be linked to other policy goals. A only declared work is actually measured household incomes more generally. From
shift from labour towards green taxation and counted and, more generally, it is the demand side, a difficult business
also provides incentives for moving to a seen to undermine conventional growth- environment may also have encouraged
more green and resource-efficient econ- oriented economic, budgetary and social employers to seek to evade or limit tax
omy, which could bring more sustainable policies. From a macro-economic per- liabilities by resorting to undeclared work.
and high-quality employment ( ). spective, it decreases tax revenues
38
and may undermine the financing of Tax evasion and inequality are closely
Targeting a reduction in the labour tax social security systems. From a micro- connected. Higher levels of inequality
wedge to the groups facing the greatest economic perspective, it tends to dis- are associated with a higher probability
challenges can maximise the employ- tort competition between firms and to of tax evasion while tax evasion may
ment effects of the reform limiting at reduce efficiency since informal busi- increase income inequality, especially
the same time its fiscal costs. Simula- nesses typically avoid accessing formal with respect to a situation of full tax
tions with DG EMPL’s Labour Market services and inputs (e.g. credit) and compliance ( ).
42
Model for nine selected Member States hence tend to remain small.
show a pronounced employment impact Lack of mobility
when employers’ social security costs for Moreover, undeclared work is frequently
young workers are lowered by an amount associated with poor working conditions, Intra-EU labour mobility can play an
equivalent to 0.1 % of GDP, financed by limited prospects of career progress and important role in alleviating some of
39
higher VAT ( ). Tax shifts away from a lack of social protection. the conjunctural challenges faced by
labour can reduce labour costs, in par- EU labour markets, notably by mitigat-
ticular for the low-skilled and the young The scale and nature of undeclared work ing unemployment in hard-hit regions
where such reductions can have a strong is influenced by many factors. Economic and countries and in addressing labour
impact and are most needed. This makes factors include the direct and indirect force shortages in more resilient ones,
handling the distributional implications incidence of taxation and the ‘cost’ of by contributing to a more efficient allo-
of such shifts even more important. complying with complex tax and labour cation of human resources across the
regulations, as well as the penalties (or single market, thus mitigating skills
43
41
( ) The Eurogroup recalled that the ‘overall tax lack of them) related to enforcement ( ). mismatches ( ).
36
burden in the euro area is above the OECD
average and is skewed towards labour’
(Eurogroup, 2014). However, intra-EU labour mobility
( ) See the conclusions of Chapter 4 in remains limited in comparison to other
37
European Commission (2013c): “increasing ( ) Formally, the definition adopted by the
40
standard VAT rates has less socially European Commission is: ‘…any paid OECD countries (such as the US, Canada
detrimental effects than curtailing VAT activities that are lawful as regards their or Australia) and as a proportion of the
reduced rates and exemptions”. nature but not declared to public authorities, overall size of the EU labour market.
( ) European Commission (2014c) provided taking into account differences in the
38
estimates of possible employment gains. regulatory system of Member States’, While one in four EU citizens say they
( ) More simulation results, with reductions European Commission (2007), p. 2. 42
39
41
targeted at other groups, can be found in ( ) See also Chapter 4, ‘Undeclared work: recent ( ) See the conclusions of Chapter 4 in
Chapter 4 of European Commission (2013c). developments’ in European Commission European Commission (2013c).
43
See also Chapter 3 of this review. (2014a). ( ) Jauer et al. (2014).
20
36
stimulate employment creation ( ). The Chart 12: Tax wedge on low-income earners and the employment
benefits could be particularly high if tax rate of low-skilled
reductions were targeted at the most vul - 10
nerable groups in the labour market, while DE
recognising that the outcome might dif- 5
fer significantly between Member States RO
depending on their characteristics and the 0 MT
composition of their workforce. Change in employment rate low-skilled (pps, '08-'13) UK SE LT CZ AT BE EE PL IT SK HU
The optimal design of tax shifts from both -5 NL BG FI FR EU LU LV
an employment policy and social policy SI
perspective is a complex task, requiring -10 DK PT
distributional impacts to be addressed. EL ES IE
For example, the regressive effects of -15 -3 0 3 6
substituting VAT for labour taxes can Change in tax wedge low-income earners (pps, '08-'13)
be mitigated by compensating targeted Source: OECD Taxing Wages, Eurostat, lfsa_ergaed.
groups (unemployed, retirees) and by Note: Tax wedge: single earner, earning 67 % of the average wage. Low-skilled: ISCED levels 0-2.
focusing on standard rather than reduced
37
rates and exemptions ( ). Similarly, green
taxes linked to car ownership represent Undeclared work Various features of the current labour
a lower tax burden for the lower income market and social situation are likely
groups than taxes on heating and energy, Undeclared work is categorised as paid to have been conducive to the growth
and a proper taxation of imputed rent has activity that is lawful in itself, but not of informal work, such as the increas-
40
socially favourable effects. declared to public authorities ( ). The ing length of unemployment spells, the
existence of undeclared work distorts situation of relatively disadvantaged
The desirability of some tax shifts could the evidence on job creation in so far as groups, and the pressure on wages and
also be linked to other policy goals. A only declared work is actually measured household incomes more generally. From
shift from labour towards green taxation and counted and, more generally, it is the demand side, a difficult business
also provides incentives for moving to a seen to undermine conventional growth- environment may also have encouraged
more green and resource-efficient econ- oriented economic, budgetary and social employers to seek to evade or limit tax
omy, which could bring more sustainable policies. From a macro-economic per- liabilities by resorting to undeclared work.
and high-quality employment ( ). spective, it decreases tax revenues
38
and may undermine the financing of Tax evasion and inequality are closely
Targeting a reduction in the labour tax social security systems. From a micro- connected. Higher levels of inequality
wedge to the groups facing the greatest economic perspective, it tends to dis- are associated with a higher probability
challenges can maximise the employ- tort competition between firms and to of tax evasion while tax evasion may
ment effects of the reform limiting at reduce efficiency since informal busi- increase income inequality, especially
the same time its fiscal costs. Simula- nesses typically avoid accessing formal with respect to a situation of full tax
tions with DG EMPL’s Labour Market services and inputs (e.g. credit) and compliance ( ).
42
Model for nine selected Member States hence tend to remain small.
show a pronounced employment impact Lack of mobility
when employers’ social security costs for Moreover, undeclared work is frequently
young workers are lowered by an amount associated with poor working conditions, Intra-EU labour mobility can play an
equivalent to 0.1 % of GDP, financed by limited prospects of career progress and important role in alleviating some of
39
higher VAT ( ). Tax shifts away from a lack of social protection. the conjunctural challenges faced by
labour can reduce labour costs, in par- EU labour markets, notably by mitigat-
ticular for the low-skilled and the young The scale and nature of undeclared work ing unemployment in hard-hit regions
where such reductions can have a strong is influenced by many factors. Economic and countries and in addressing labour
impact and are most needed. This makes factors include the direct and indirect force shortages in more resilient ones,
handling the distributional implications incidence of taxation and the ‘cost’ of by contributing to a more efficient allo-
of such shifts even more important. complying with complex tax and labour cation of human resources across the
regulations, as well as the penalties (or single market, thus mitigating skills
43
41
( ) The Eurogroup recalled that the ‘overall tax lack of them) related to enforcement ( ). mismatches ( ).
36
burden in the euro area is above the OECD
average and is skewed towards labour’
(Eurogroup, 2014). However, intra-EU labour mobility
( ) See the conclusions of Chapter 4 in remains limited in comparison to other
37
European Commission (2013c): “increasing ( ) Formally, the definition adopted by the
40
standard VAT rates has less socially European Commission is: ‘…any paid OECD countries (such as the US, Canada
detrimental effects than curtailing VAT activities that are lawful as regards their or Australia) and as a proportion of the
reduced rates and exemptions”. nature but not declared to public authorities, overall size of the EU labour market.
( ) European Commission (2014c) provided taking into account differences in the
38
estimates of possible employment gains. regulatory system of Member States’, While one in four EU citizens say they
( ) More simulation results, with reductions European Commission (2007), p. 2. 42
39
41
targeted at other groups, can be found in ( ) See also Chapter 4, ‘Undeclared work: recent ( ) See the conclusions of Chapter 4 in
Chapter 4 of European Commission (2013c). developments’ in European Commission European Commission (2013c).
43
See also Chapter 3 of this review. (2014a). ( ) Jauer et al. (2014).
20
