The effects of changes in the tax structure on employment : analysis and projections

Abstract

This dissertation begins by presenting economic theories relating to the structure of taxation and to the structure of the labour market, which are then utilised for the determination of the effects that the structure of direct taxation has on employment. In particular the study shows how the proportion of direct taxation on income affects the participation rate, and how different schemes of income tax, social security contributions and unemployment benefits affect voluntary unemployment and female participation rates. The dissertation then presents a summary of the trends in the revenue generated from direct taxation and the amounts of unemployment benefits paid as well as the trends in the employment market in Malta for the last 14 years. Basing on the theory presented in the initial chapters and the data relating to Malta, the study concludes by providing recommendations of how the income tax, social security contributions and unemployment benefit systems should be amended in order to generate the required funds for government whilst causing the least possible distortions in the labour market.