Tax policy analysis

OECD Tax Policy Study No. 21: Taxation and Employment


Press release | Overview and Executive Summary | Table of contents |

How to obtain this publication | | More information


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Publication Date: 12/10/2011
Pages: 165

How do taxes affect the level of employment? What reforms can reduce unemployment and increase labour force participation? These questions are answered in OECD Tax Policy Study No. 21: Taxation and Employment. This report examines the effects of taxation on employment, highlights key policy challenges faced by governments, and suggests ways that countries can address these challenges.


The report provides both a broad overview of the effects of taxation on employment as well as a detailed analysis of selected issues. Chapter 1 provides the overview, examining how taxes on labour income can affect both the size of the labour force and the level of unemployment, and highlighting key areas of concern for tax policy makers. This analysis is then augmented in chapters 2 to 4 by the more detailed analysis of the effects of taxation on the employment of three key groups: low-income workers, older workers, and mobile high-skilled workers.


As well as highlighting key areas of concern for tax policy makers, the report places a particular focus on the different measures that have been adopted by countries to overcome these problems. It discusses the main design features, and the advantages and disadvantages of the different approaches that have been adopted.


Press Release


12/10/2011 - Tax reform can create jobs.  (also available in French)


 Overview and Executive Summary


An overview of the report is available in flyer (PDF, 136Kb) and in French (PDF, 136Kb). For more detailed information, download the Executive Summary (PDF, 230Kb).


  Table of Contents

Executive Summary

Chapter 1. The Effects of Taxation on Employment: An Overview

1.1. Employment in OECD countries

1.2. The taxation of labour income in OECD countries

1.3. Taxation and unemployment

1.4. Taxation and labour supply

1.5. Non-labour taxes and employment

1.6. Key employment-related tax policy challenges

1.7. Summary and Conclusions

Chapter 2. The Taxation of Low-Income Workers

2.1. Trade-offs in designing tax-benefit systems: Consequences for employment

2.2. Quantifying the financial disincentives to work

2.3. Reducing the tax burden on labour

2.4. In-work tax credits or benefits

2.5. The effect of taxation on the demand for low-income workers

Chapter 3. The Taxation of Older Workers

3.1. The retirement behavior of older workers

3.2. Factors affecting retirement behavior

3.3. Quantifying the financial incentive to retire

3.4. The tax treatment of older workers and retirees

3.5. Policies to improve work incentives for older workers

3.6. The effect of taxation on the demand for older workers

Chapter 4. The Taxation of Mobile High-Skilled Workers

4.1. The mobility of high-skilled workers

4.2. The effect of tax on migration decisions

4.3. Tax concessions for high-skilled workers: arguments for and against

4.4. Tax concessions for high-skilled workers: key design issues


Annex A. Additional Labour Force and Tax Burden Information

Annex B. Additional Retirement Incentive Modelling Results


 How to obtain this publication


 More information


For further information, please contact Stephen Matthews ( or Alastair Thomas ( from the Centre for Tax Policy and Administration.


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