TAXATION AND LABOUR SUPPLY

Taxation and Labour Supply

Taxation and Labour Supply

Introduction

If the tax is essential for the proper functioning of the state, it may pose a number of threats on the performance of the economy and, to some extent, discourage labour supply of individuals. The aim of this paper is to analyse whether the tax effects on labour supply and tax revenues are the same as the tax system in force. Under taxes, levies, duties and other payments mean a mandatory contribution to the corresponding level or the extra-budgetary fund, implemented by payers in a manner and on terms determined by legislative acts (Goolsbee et.al. 1999, 1-64).

Groups of taxes

Taxes are of two kinds. The first kind - taxes on income: the income tax on individuals, corporate income tax (corporations, firms), tax on social security and payroll taxes and labour (the so-called social tax), property taxes, including taxes on property, including land and other property, taxes on profit remittances and capital abroad, etc. They are charged with a specific person or entity, they are called direct taxes (MaCurdy et.al. 1990, 415-490).

The second kind - tax on goods and services: sales tax, which in most developed countries are now replaced by the value added tax (VAT), excise taxes (taxes, directly included in the price of goods or services); inheritance tax on the transaction real estate and securities, etc. These taxes are called indirect. They are partially or completely transferred to the price of goods or services. In UK, approximately one-half the tax revenue falls on direct taxes, the other - to indirect (Goolsbee et.al. 1999, 1-64).

Direct taxes are difficult to transfer to the consumer. The easiest is the case with taxes on land and other property: they are included in the rent and the price of agricultural products.

Indirect taxes are transferred to the end user, depending on the elasticity of demand for goods and services which are subject to these taxes. The less elastic the demand, the greater part of the tax is passed on to consumers. The less elastic supply, the lower portion of the tax is passed on to the consumer, and most of it is paid out of profits. In the long run elasticity of supply is growing, and consumers shifted more and more of indirect taxes (MaCurdy 1992, 243-249).

With a high elasticity of demand increase of indirect taxes may lead to a reduction in consumption, and high elasticity of supply - to reduce the net profit, which will reduce the flow of capital investment (Goolsbee et.al. 1999, 1-64).

Taxes have the following essential functions:

Fiscal, i.e. financial public expenditures. The state has the traditional functions - the content of public administration, law enforcement and citizens' security, national defence, environmental protection and natural resources, support for transport, roads, communications and informatics. In the twentieth century they were added to the increase social and cultural functions (MaCurdy 1992, 243-249).

Social, i.e. maintaining social equilibrium by changing the ratio between the incomes of different social groups in order to diminish the inequality between ...