'Klin'-ing up: effects of Polish tax reforms on those in and on those out

In 2007 and 2008 Polish governments introduced a series of reforms which led to a substantial reduction in the tax "wedge" (in Polish: "klin") on labour. The mean ATR on total labour cost was reduced from 41.6% to 34.0%. We show that when considered together the package of introduced reforms brought much greater reductions in the tax burden compared to a widely discussed 15% "flat tax". In the analysis we show the effects of the reforms both for the employed and for the non-employed populations. The latter analysis is done in such a way as to account for the entire (simulated) distribution of wages of the non-employed and shows interesting differences between the effects of reforms on employed and non-employed individuals. We argue that to fully appreciate the effect of reductions in labour taxation it is important to bear in mind that one of the reasons for introducing them is to make employment more likely for those who currently do not work. Given the extent of the reductions in the "klin" it is somewhat surprising that so far so little attention has been given to the recent Polish reforms.Work incentives, tax wedge, labour costs, employment

'Klin'-ing Up: Effects of Polish Tax Reforms on Those In and on Those Out

In 2007 and 2008 Polish governments introduced a series of reforms which led to a substantial reduction in the tax "wedge" (in Polish: "klin") on labour. We show that when considered together the package of introduced reforms brought much greater reductions in the tax burden compared to a widely discussed 15% "flat tax". In the analysis we show the effects of the reforms both for the employed and for the non-employed populations. The latter analysis is done in such a way as to account for the entire (simulated) distribution of wages of the non-employed and shows interesting differences between the effects of reforms on employed and non-employed individuals. We argue that to fully appreciate the effect of reductions in labour taxation it is important to bear in mind that one of the reasons for introducing them is to make employment more likely for those who currently do not work. Given the extent of the reductions in the "klin" it is somewhat surprising that so far so little attention has been given to the recent Polish reforms.work incentives, tax wedge, labour costs, employment

Count Your Hours: Returns to Education in Poland

We show how significant may be the difference in the estimated returns to education in Poland conditional on the measure of wages used and the estimation approach applied. Combining information from two different Polish surveys from 2005 and taking advantage of the Polish microsimulation model (SIMPL) we demonstrate how different the results can be depending on whether we use net or gross, and monthly or hourly wages, and show how important selection correction is for the conclusion. While there are several papers examining the wage equation in Poland, so far none of them has provided a comprehensive analysis of the effects of using different methods and the issue of selection-correction in the estimation of the wage equation in Poland has not been examined in detail. Annual rates of return to university education for men vary from 6.7% to 9.7% and for women from 8.0% to 13.4% when we compare results using net monthly wages without correcting for labor market selection to those from a selection corrected specification using gross hourly wages. We also demonstrate that simple linear estimation performs relatively well for men in comparison to our preferred selection corrected estimation, while using family demographics as exclusion restrictions seems to be the "second best" in the case of the wage equation estimation for women.returns to education, wage equation, selection models, instrumental variables

SUBJECTIVE APPROACH TO ASSESSING POVERTY IN POLAND – IMPLICATIONS FOR SOCIAL POLICY

The poverty rates based on the OECD scales are frequently used in public debate. In this scale, large families are usually identified as those most in need of financial support. Poland is an interesting case for applying an alternative, subjective approach to calculating equivalent scales, as Poland has a large mean size for households, and is dependent on means-testing in social policymaking. The overall poverty rates for the two approaches are not distinctly different but they lead to significantly different distributions of poverty, as different types of households are considered in line with the result in Bishop et al. (2014) for the eurozone countries. The subjective approach suggests that one-person households, not large families, should be considered most at risk of material poverty. Futhermore, the relative positions of households in the income distributions also differ considerably. As a consequence, the current shape of social policy in Poland may need to be reconsidered in order to distribute public transfers more accurately

Alternative tax-benefit strategies to support children in Poland

Eurostat data shows that children and elderly are especially at risk of being in poverty. In 2004 the average rates of poverty risk in the European Union for these groups were about 19%. In Poland, the rate was 29% for children and only 7% for the elderly. We examine the role of the tax-benefit system in explaining this situation and analyse how much child poverty figures could change under several reform scenarios. In 2005, families with children were mainly supported by a means-tested family allowance and some supplements. This was extended in 2007 with the introduction of a non-refundable child tax credit. Making use of the European tax-benefit microsimulation model EUROMOD, this paper assesses the consequences of the recent reform in Poland. We examine the outcome in comparison to child policies in three other European systems and show that poverty reduction would have been more pronounced, if child policies were changed along the lines of the system in France or the United Kingdom. The Austrian system - relying primarily on universal benefits - would bring about a similar reduction in the poverty rate but with much greater reduction in the poverty gap. The paper presents detailed distributional analysis under the different systems assuming the cost of importing each of them to be the same as that of introducing the 2007 reform

Employment fluctuations and dynamics of the aggregate average wage in Poland 1996 - 2003

The aggregate average wage is often used as an indicator of economic performance and welfare, and as such often serves as a benchmark for changes in the generosity of public transfers and for wage negotiations. Yet if economies experience a high degree of (nonrandom) fluctuation in employment the composition of the employed population will have a considerable effect on the computed average. In this paper we demonstrate the extent of this problem using data for Poland for the period 1996-2003. During these years employment in Poland fell from 51.2% to 44.2% and most of it occurred between the end of 1998 and the end of 2002. We show that about a quarter of the growth in the average wage during this period could be attributed purely to changes in employment

Employment Fluctuations and Dynamics of the Aggregate Average Wage in Poland 1996-2003

The aggregate average wage is often used as an indicator of economic performance and welfare, and as such often serves as a benchmark for changes in the generosity of public transfers and for wage negotiations. Yet if economies experience a high degree of (nonrandom) fluctuation in employment the composition of the employed population will have a considerable effect on the computed average. In this paper we demonstrate the extent of this problem using data for Poland for the period 1996-2003. During these years unemployment in Poland almost doubled. We show that about a quarter of the growth in the average wage during this period could be contributed purely to changes in employment

Count your hours: returns to education in Poland

We show how significant may be the difference in the estimated returns to education in Poland conditional on the measure of wages used and the estimation approach applied. Combining information from two different Polish surveys from 2005 and taking advantage of the Polish microsimulation model (SIMPL) we demonstrate how different the results can be depending on whether we use net or gross, and monthly or hourly wages, and show how important selection correction is for the conclusion. While there are several papers examining the wage equation in Poland, so far none of them has provided a comprehensive analysis of the effects of using different methods and the issue of selection-correction in the estimation of the wage equation in Poland has not been examined in detail. Annual rates of return to university education for men vary from 6.7% to 9.7% and for women from 8.0% to 13.4% when we compare results using net monthly wages without correcting for labor market selection to those from a selection corrected specification using gross hourly wages. We also demonstrate that simple linear estimation performs relatively well for men in comparison to our preferred selection corrected estimation, while using family demographics as exclusion restrictions seems to be the second best in the case of the wage equation estimation for women

Subjective equivalence scales using EU-SILC panel data for Poland, the Czech Republic, and Hungary

Equivalence scales are commonly employed in income analysis to compare the wealth of households of various compositions (e.g., 0-child, 1-child). The choice of weights for this type of analysis is not self-evident. In this paper, subjective equivalence scales for households in Poland, the Czech Republic, and Hungary are estimated. We use longitudinal EU-SILC data for 2005–2012 following the approach of Goedhart et al. (1977) as employed by Bishop et al. (2014). The use of longitudinal data shows that previous results on the subjective minimum income that were based on the OLS estimates for cross-section data overestimated the impact from current income and underestimated the role of economies of scale. Subjective equivalence scales imply a decreasing marginal cost of children in the three countries, which makes them distinct from the OECD scale. The marginal cost of a first child is similar to the values assumed in the OECD scale, but the cost of a second child is much lower