Taxing Work: Some Political and Economic Aspects of Labor Income Taxation

WZB, Markets and Political Economy Working Paper No. SP II 2003-17

52 Pages Posted: 3 Dec 2003

See all articles by Thomas R. Cusack

Thomas R. Cusack

Wissenschaftszentrum Berlin für Sozialforschung (WZB)

Pablo Beramendi

WZB Berlin Social Science Center

Date Written: October 2003

Abstract

This paper examines the development of tax regimes across the OECD countries in the latter part of the 20th century. It pays particular attention to taxes on labor income. A number of results emerge from this examination. First, not only do taxes on labor income represent a major drain on private households; they have become the mainstay of many of these countries' public sector finances. Second, taxes on labor income, and not taxes on capital, appear to be the preferred instrument of finance for those economic and political interests that advocate and support a strong (and thereby expensive)welfare state. There is little "free lunch" to be had in these welfare states; if anything, "socialism in one class" seems to be the rule. Third, while the effort at financing the welfare state this way comes at cost in terms of loss in employment, the magnitude of such loss is inversely related to the degree of wage coordination in the labor market.

Keywords: Taxation, Partisan Politics, Institutions, Varieties of Capitalism

JEL Classification: H24, J32, J50, J64

Suggested Citation

Cusack, Thomas R. and Beramendi, Pablo, Taxing Work: Some Political and Economic Aspects of Labor Income Taxation (October 2003). WZB, Markets and Political Economy Working Paper No. SP II 2003-17, Available at SSRN: https://ssrn.com/abstract=473724 or http://dx.doi.org/10.2139/ssrn.473724

Thomas R. Cusack (Contact Author)

Wissenschaftszentrum Berlin für Sozialforschung (WZB) ( email )

Institution, States, and Markets Working Group
Reichpietschufer 50
D-10785 Berlin
Germany

Pablo Beramendi

WZB Berlin Social Science Center ( email )

Reichpietschufer 50
D-10785 Berlin
Germany

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