Income Taxation And Labor Force Participation In Transition Economies: Evidence From Bulgaria, Russian Federation And Serbia
Abstract
This paper provides the evidence of the impact of income taxation on the labor force participation in three transition economies, namely, Bulgaria, Russian Federation and Serbia. The evidence suggests that countries which inherited high labor force participation rates are relatively insensitive to changes in the wage rates induced by the changes in the personal income taxation. The estimations have been performed using Heckman (1979) methodology and results showed relatively small wage elasticities of labor force participation for both men and women. In contrast, the sensitivity of the labor force participation decision to changes in wages is found to be bigger for females. The insensitivity of the labor force participation to changes in personal income taxation in all countries under the study may bear serious implications for tax policy design.