Distributional income and employment effects of fiscal policy: Micro-level evidence for Austria

Client/Funding Institution

Österreichische Akademie der Wissenschaften

Abstract

This project provides new micro-level evidence on how tax and transfer shocks affect incomes and employment. As the identification of exogenous policy shocks is a key issue in establishing a causal relation from tax and transfer policy changes to incomes and employment, we collect a rich time series of exogenous tax and transfer shocks for Austria. These novel data cover the timing, size and motivation of legislative tax and transfer changes over the period 2000-2022 based on information collected from government bills, budget reports, the annual budget speech of the finance minister in the Austrian parliament, press coverage and economic reports. We combine this narrative data set with micro data provided by the AMDC on incomes and employment. This allows us to test whether different policy measures (e.g. labor income tax reforms, changes to consumption taxes, or social security transfers) will affect individual income and employment trajectories differently. Combining the AMDC micro data with our macroeconomic dataset of fiscal shocks will enable a high-frequency identification of the impact of tax and transfer shocks at the individual level. These individual tax and transfer shocks can then be tested as possible explanations for individual employment trajectories, reasons for (un)employment and work time decisions, conditional on the social and economic status of the individual. An important outcome of our project will be a consistent narrative macroeconomic time series of the timing, size, motivation and target of tax and transfer shocks for Austria. This dataset will be published open-source and can thus be used by other researchers for further research questions at the national level. It may also be combined with similar datasets for other countries in international panel studies or country-comparisons. While there is a large empirical literature on the macroeconomic effects of tax and transfer shocks, the transmission mechanisms from tax and transfer changes to income and employment effects are not yet well understood. Our findings will inform policy makers about the impact of different tax and transfer policies on employment and income trajectories in Austria, also with a view to exploiting regional variation. These findings will also contribute to the academic literature on the impact of fiscal policies. In particular, we will shed new light on the transmission mechanisms of tax and transfer shocks via labor supply and demand decisions that are currently not well understood. This could also inform parameterisations of modern macroeconomic heterogeneous agent models.

Duration

July 2025 - June 2027

wiiw team Leader

Philipp Heimberger

wiiw Staff

Cara Dabrowski, Elena Smirnova

Project Partners

TU Chemnitz

Countries covered: Austria

Research Areas: Macroeconomic Analysis and Policy

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