Labour Force Participation Elasticities and Move Away from the Flat Tax: the Case of Slovakia
Published: September 2016
This paper provides a microeconometric analysis of labour force participation elasticities in Slovakia. Using a fully parametric framework, a probability model for participation in labour force is estimated. Our results show that low-skilled and females are the groups that are particularly responsive to changes in income taxes and transfers. We perform a microsimulation analysis of two counterfactual scenarios of abolition of the flat tax regime. We find out that recent departure from the flat-tax system in Slovakia reduces the average probability of being economically active by 0.1 percentage points. The same average effect is found in the hypothetical scenario simulating a departure from the flat-tax system by reintroducing five tax brackets. However, we show that the impact of the two scenarios on selected subgroups of population is different.