Page 22 - IDEA Study 7 2015 Working Beyond Pensionable Age

Graph 10: Average gross participation tax rate conditional on age and gender Source: SILC 2012 for the Czech Republic, TAXBEN, own computations The tax and benefit system incentivizes people to work not only by the way the taxes are set up, but also through the design of social benefits. Taxes affect incentives to work through the extent to which they place additional tax burdens on working individuals, but those individuals are also incentivized by the social benefits they have to sacrifice when they decide to work. Examples of such social benefits, which are lost or may be lost if the individual enters work, are unemployment benefit, early retirement benefit, housing benefit or aid in material need. The composite effect of total direct tax and social benefits on incentives to work is quantified by the net participation tax rate. Technically, the net participation tax rate incorporates the effect of early pension income, aid in material need, and housing benefits in addition to the effects included in the gross participation tax rate. The net participation tax rate is shown in graph 11. In contrast with graphs 14 and 16 (in the appendix), the net participation tax rate in graph 11 does not include the effect of the unemployment benefits that are sacrificed when an individual works. Graphs 14 and 16 (in the appendix) depict an alternative specification of the net participation tax rate, which includes the effect of those unemployment benefits. The reason why we present the net participation tax rate without the effect of unemployment benefit here (graph 11) is that the economically inactive are not eligible for unemployment benefit, unless they pretend to be unemployed. However, pretending unemployment is troublesome and costly: i) claimants have to fulfil a number of obligations (such as actively applying for jobs), ii) unemployment benefits are available only for a limited period, and iii) those who have qualified for unemployment benefit in 20