This paper considers the impact of taxation policy on market work. On the basis of the evidence, we find that a 10 percentage point rise in the tax wedge will reduce overall labour input provided via the market by around 2 per cent of the population of working age. The tax wedge is the sum of the payroll, income and consumption tax rates. This only explains a minority of the market work differentials across count ries. Much of the remainder is probably down to the differences in the social security systems supporting the unemployed, the sick and disabled and the early retired.

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May 2004     Paper Number CEPDP0634

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This CEP discussion paper is published under the centre's Labour programme.