Corporate Taxes and the Earnings Distribution: Effects of the Domestic Production Activities Deduction

This paper investigates how corporate tax changes affect workers’ earnings. We use a dataset of U.S. worker-level W-2 filings matched with corporate tax returns and study the implementation of the Domestic Production Activities Deduction (DPAD). We find the DPAD tax rate reduction has a substantial effect on the distribution of annual wage earnings within a firm. Earnings of workers at the top of their firm’s earnings distribution rise relative to those at the bottom of the distribution. We estimate a semi-elasticity of average earnings of 1.1 with respect to the DPAD marginal tax rate reduction, while the semi-elasticity of median earnings is notably smaller—0.5. Furthermore, we estimate a semi-elasticity of 1.3 at the 95th percentile of workers’ earnings and 2.7 at the 99th percentile. This trend of larger semi-elasticities at the top of the earnings distribution is especially pronounced for small firms. Looking at overall employment effects, we see no change overall, but the number of employees rises at small firms and declines at large firms. In contrast, we find that capital investment rises for large firms, suggesting that the DPAD also resulted in domestic capitallabor substitution for large corporations. Our paper has significant implications for assessing the progressivity of the U.S. tax code and for analyzing the effect of corporate tax policy changes on the U.S. income distribution.

Fair income tax with endogenous productivities and a fresh start

This paper considers a model in which agents have heterogeneous preferences over labour and consumption. Additionally, they also differ in their earning skills, which are a function of both an innate ability and an early investment decision. In this framework we axiomatically derive a social ordering function that, besides compensating agents for their unequal productivities, grants a fresh start to those who regret their initial choices. Next, by assuming a second-best context we characterise the income tax scheme that satisfies this social ordering. This analysis permits us to present an explicit criterion for the assessment of social welfare under different tax policies. We obtain that the optimal scheme aims to compensate those endowed with the lowest marginal productivity. More importantly, on account of the forgiveness ideal positive social marginal weights are assigned to those who earn the lowest income levels, something that induces a progressivity tendency at the bottom of the earnings distribution.

A Comparative Analysis of Men and Women’s Hourly Earnings in Poland with Particular Emphasis on the Education Sector

Research background: There is the lack of a sector based analysis of wages for different genders. We present such an analysis regarding the education sector in Poland. purpose: The study aims to compare hourly earnings for men and women in Poland, with particular emphasis on the education sector. We go beyond the simple Oaxaca-Blinder decomposition and compare earnings distributions. Research methodology: First, we examine the hourly earnings inequalities using the Oaxaca-Blinder decomposition procedure. Second, we extend this procedure to different quantile points along the whole earnings distribution by the use of the residual imputation approach. The results are obtained for the whole sample (people of all professions), for a group of teaching professionals, and for university and higher education teachers. Results: The magnitude of the gender hourly wage gap varies substantially depending on how the sample of interest is defined. It also heavily depends on the quantile of the analyzed distribution. Although the average gap in the educational sector is negative, the differences turn positive and increase with higher quantiles of distribution in favor of men. The disparity was most pronounced for university top professionals. Novelty: Our results provide novel insights into the sectoral dimension of the income gap. We analyze inequalities over whole distribution in the educational sector and compare them with wage inequalities in enterprises employing more than 9 people.

Personal income tax design and background-related earnings advantages: evidence from Italy and Poland

PurposeThe authors analyse how the association between parental background and adult children's earnings changes when net rather than gross children's earnings are considered and disentangle what such changes depend on: differences between pre and after taxes earnings inequality or reranking of individuals along the earnings distribution before and after taxes.Design/methodology/approachUsing data from European Union Statistics on Income and Living Conditions (EU-SILC) 2011, the authors focus on two large European countries, Italy and Poland, with comparable levels of inequality and background-related earnings premia but very different personal income tax (PIT) design and estimate – at both the mean and the deciles of the earnings distribution – the association between parents' characteristics and children's gross and net earnings.FindingsThe authors find that in Italy the PIT reduces the magnitude of the association between parental background and adult children's earnings at the top of the distribution, while no effects emerge for Poland, and the reduction is mostly due to a decrease in earnings inequality rather than to a re-ranking of children along the distribution. The findings are confirmed when the authors simulate the introduction of a “quasi flat tax” regime in Italy.Social implicationsThe findings suggest that the higher the tax progressivity, the higher the background-related inequality reduction and the lower the intergenerational association, signalling that the degree of progressivity amongst children may be an effective weapon to reduce intergenerational inequality.Originality/valueIn the literature on intergenerational inequality, the role of taxes is usually overlooked. In this paper, the authors try to fill this gap and enquire how the PIT design affects the association between parental background and adult children's earnings.

South Africa

In this chapter the authors synthesize the findings from several recent studies on South Africa’s high income inequality. These studies use new datasets—including income tax data—and new empirical methods to investigate the drivers of household income and individual earnings inequality in South Africa. Increased returns to experience and an increased rate of return to tertiary qualifications are key drivers of a widening earnings distribution. Tax data merged with survey data show that those at the top of the earnings and income distributions have done well in both absolute and relative terms, thus increasing inequality. Direct taxes and social grants are progressive, indirect taxes are less progressive, and tax exemptions for health insurance and pension fund contributions are regressive. A significant proportion of the current middle class are vulnerable to falling into poverty. Overall, South Africa has not made progress in reducing its extreme inequality over the past decade.

Scrutinizing the sticky floor/glass ceiling phenomena in the informal labour market in Cameroon: An unconditional quantile regression analysis

Cameroon’s informal labour market largely harbours female workers, engaged mainly in low-productivity and low-paying jobs. We investigate the sticky floor and glass ceiling phenomena in the informal labour market as a whole and across its segments. We use the 2010 Cameroon labour market survey, employing the recentred influence function and blending the Oaxaca-Ransom and Neuman-Oaxaca decomposition methods. The resulting framework enables us to account for selectivity bias at the mean, resolve the index number problem of the standard decomposition, and examine earnings differentials across the unconditional earnings distribution. We find compelling evidence of a sticky floor phenomenon in the informal labour market manifested essentially among wage earners. Returns to experience mitigate the gender earnings gap at the mean, and 10th and 50th percentiles of the unconditional earnings distribution. Female workers have an unambiguous human-capital-based advantage over their male counterparts at the mean, lower tail, and median of the distribution.

Changes in occupations and their task content: Implications for employment and inequality in Argentina, 2003–19

The aim of this paper is to identify the scope and patterns of the structural transformation as evidenced by changes in occupations and their task content, and their impact on employment, earnings and income distribution in Argentina during the new millennium. Results show that the changes in jobs did not follow the same pattern as those in earnings. In particular, earnings grew but employment shares fell in low-paying occupations. The macroeconomic conditions, production structure, and labour market institutions seem to shape the impact of technology on job demand and on earnings distribution. Overall, the findings point at the need for a broader perspective with a view to achieving a better understanding of the extent to which these factors may have affected the adoption of technology and the composition of employment in a country characterized by high economic instability and dramatic changes in their productive structure.