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Description:
This paper analyses financial incentives to work in Finland from three perspectives. First, the financial incentives to work are quantified i.e. the participation tax rate (PTR) levels are calculated with numerous classifications. Second, a question of how different parts of the tax and social security system affect work incentives is answered; the PTR is decomposed so that the quantitative contribution of different tax and social security components is given. Third, subgroup decomposition method is applied to explain how variation in PTR is explained by various characteristics of individuals. We found that taxation and unemployment benefits account the largest shares of the mean PTR. Another finding is that PTRs vary substantially and the benefit side and length of unemployment explain this variation quite well. However, the majority of the variation cannot be explained.