Statutory, effective, and optimal net tax schedules in Lithuania

Nerijus Cerniauskas; Alain Jousten

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Statutory, effective, and optimal net tax schedules in Lithuania

Nerijus Cerniauskas

and

Alain Jousten

| Jun 19, 2021

IZA Journal of Labor Policy

Volume 11 (2021): Issue 1 (January 2021)

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Page range: -

Accepted: Feb 16, 2021

DOI: https://doi.org/10.2478/izajolp-2021-0005

Keywords
Optimal tax schedule, effective tax schedule, statutory tax schedule, taxes, transfers, employees, self-employed, Lithuania

© 2021 Nerijus Cerniauskas et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Average equivalized yearly income in Lithuania for 2014–2015 reference years.Bars represent average equivalized income for employee and self-employed households under two grouping definitions: income definition and time definitions. The sum of equivalized net labor income and equivalized net tax is equivalized gross employment income. Calculations are based on the working sample. There are 264 households that fall under the time definition for the self-employed and 545 under the income definition (4,566 and 4,889 for the employees, respectively).

Statutory social insurance contributions excluding the statutory health insurance contributions prior to 2019 reform.AMW, average monthly wage; MMW, monthly minimum wage. Sources: Based on state tax inspectorate of Lithuania.

Statutory equivalized incomes of households grouped using the income definition in Lithuania.Equivalized gross employment income and net labor income is in thousands of Euros per year. Households are allocated to groups according to the income definition for 2014–2015 income reference years and are represented by dots in the graph (see Section 2). The diagonal line illustrates that household employment income is equal to net labor income. Any dot above the diagonal line illustrates that the household receives additional benefits, whereas dots under the horizontal line mean that the household pays additional taxes or social contributions.

Effective equivalized incomes of households grouped using the income definition in Lithuania.Equivalized gross employment income and net labor income is in thousands of Euro per year. Households are allocated to employment groups according to the income definition for the 2014–2015 income reference years and are represented by dots in the graph (see Section 2). The diagonal line illustrates that what a household earns from employment is what it receives as its net labor income. Any dot above the diagonal line illustrates that the household receives additional benefits, while dots under the horizontal line means that the households pay additional taxes or social contributions.

Net taxes are higher and more progressive for employees than for the self-employed.Standard errors were compiled taking into account survey design with the help of codes from Goedemé (2013) and Zardo Trindade and Goedemé (2016) and computed using Lumley (2018) R package as described in Lumley (2004). We use 95% confidence intervals.

Optimal, effective, and statutory net tax schedules.In each graph, the optimal net tax schedule with the preferred parameter specification (see Table 7) is depicted by a blue line while alternative parameter choices are presented as a shaded area around the blue line. The green dashed line and the black dotted line represents the variables distributions in line with the effective and statutory tax schedules respectively. The diagonal red line on the top-left figure is a 45-degree line depicting zero net taxes.

Statutory, effective, and optimal equivalized tax schedules for households grouped according to income.The graph illustrates how household's equivalized gross employment income translates into equivalized net labor income for three tax schedules: effective, statutory, and optimal. The effective and statutory tax schedules are presented as points (for each decile) for employees and the self-employed. The optimal tax schedule is calculated for the total population aged 18–62, and excludes students. The shaded area around the dashed blue line illustrates a range of optimal tax schedules using a range of parameters as shown in Table 7. The data comes from EU-SILC, the simulation was carried out with the help of EUROMOD, and the optimal tax schedule was computed along the lines of Saez (2002).

Statutory equivalized gross employment income, net taxes, and net labor income in thousand Euro per year.

Percentile	Gross employment	Net taxes			Net labor income

	Income	All	Employees	Self-employed	All	Employees	Self-employed
0–7	0.00	−2.25			2.25
−20	1.41	−1.12	0.25	0.42	2.53	1.72	1.19
−30	3.59	0.07	0.76	0.70	3.52	2.86	2.95
−40	5.10	0.78	1.29	1.01	4.32	3.81	4.14
−50	6.61	1.54	1.80	1.32	5.07	4.79	5.27
−60	8.22	2.29	2.48	1.86	5.93	5.73	6.34
−70	10.08	3.03	3.16	2.83	7.05	6.96	7.03
−80	12.36	4.08	4.28	2.91	8.28	8.08	9.39
−90	15.69	5.67	5.86	4.09	10.02	9.84	11.50
−100	27.65	10.29	10.91	7.02	17.36	16.65	21.21

Intensive and extensive elasticities as proposed by Saez (2002)

	High income (w ≥ 20,000 $)	Low income (w < 20,000 $)
η	0	[0–1]
ɛ	[0.25–0.5]	[0.25–0.5]

Household average effective net tax rates in Lithuania, net taxes as a share of gross employment income. Sample restricted to households with 1 household member aged 18–62, but can include older and younger household members as well

Percentile	Net taxes			Taxes		Public transfers

	All	Employees	Self-employed	Employees	self-employed	Employees	Self-employed
0–24
−50	−0.522 [996]	−0.064 [287]	−0.190 [55]	0.316 [287]	0.117 [55]	0.380 [287]	0.307 [55]
−75	0.142 [721]	0.173 [605]	−0.115 [51]	0.362 [605]	0.105 [51]	0.188 [605]	0.221 [51]
−100	0.285 [653]	0.323 [576]	0.018 [68]	0.399 [576]	0.082 [68]	0.076 [576]	0.064 [68]

Household average effective net tax rates in Lithuania, net taxes as a share of gross employment income

2^*percentile	Net taxes			Taxes		Public transfers

	All	Employees	Self-employed	Employees	Self-employed	Employees	Self-employed
0–7
−20	−0.812	−0.095	−0.113	0.320	0.122	0.416	0.235
−30	−0.041	0.041	−0.101	0.331	0.130	0.290	0.231
−40	0.074	0.119	−0.144	0.327	0.167	0.207	0.310
−50	0.191	0.205	0.006	0.352	0.141	0.147	0.135
−60	0.219	0.241	−0.005	0.365	0.103	0.123	0.108
−70	0.242	0.267	0.083	0.364	0.124	0.097	0.041
−80	0.278	0.297	0.048	0.373	0.106	0.076	0.058
−90	0.313	0.336	0.057	0.387	0.098	0.050	0.041
−100	0.313	0.359	0.070	0.385	0.101	0.026	0.032

Household statutory average net tax rates in Lithuania, net taxes as a share of gross employment income.

Percentile	Net taxes			Taxes		Public transfers

	All	Employees	Self-employed	Employees	Self-employed	Employees	Self-employed
0–24
−50	−0.946 [996]	−0.006 [281]	−0.012 [60]	0.354 [281]	0.327 [60]	0.361 [281]	0.339 [60]
−75	0.116 [720]	0.170 [599]	0.003 [53]	0.398 [599]	0.303 [53]	0.229 [599]	0.300 [53]
−100	0.293 [653]	0.312 [577]	0.207 [68]	0.419 [577]	0.295 [68]	0.106 [577]	0.088 [68]

Number of observations per decile from EUROMOD output

Percentile	Gross employment income	Total observations	Employed	Self-employed
0–7	0	690	0	0
−20	1,413	784	174	20–49
−30	3,588	649	385	59
−40	5,102	649	462	20–49
−50	6,609	641	543	20–49
−60	8,219	635	559	20–49
−70	10,080	626	557	20–49
−80	12,357	615	545	52
−90	15,690	635	578	20–49
−100	27,651	572	461	107

Estimated difference between statutory and effective tax schedules per equivalized household per year

2^*percentile	% of statutory tax		Th. Euro

	Employees	Self-employed	Employees	Self-employed
−7
−20	4.76	64.12	0.02	0.28
−30	10.30	57.10	0.14	0.62
−40	13.72	46.82	0.27	0.75
−50	10.89	50.87	0.28	0.96
−60	8.75	63.99	0.29	1.50
−70	9.00	61.01	0.36	1.96
−80	9.25	63.95	0.47	2.33
−90	6.07	67.33	0.39	3.17
−100	8.11	63.41	0.94	4.83

Household statutory average net tax rates in Lithuania, net taxes as a share of gross employment income

2^*percentile	Net taxes			Taxes		Public transfers

	All	Employees	Self-employed	Employees	Self-employed	Employees	Self-employed
0–7
−20	−1.121	−0.106	0.171	0.336	0.340	0.442	0.169
−30	−0.018	0.076	0.104	0.369	0.303	0.293	0.199
−40	0.130	0.168	0.104	0.379	0.314	0.211	0.210
−50	0.222	0.237	0.138	0.395	0.287	0.158	0.149
−60	0.270	0.281	0.200	0.400	0.286	0.119	0.086
−70	0.293	0.301	0.277	0.400	0.318	0.099	0.041
−80	0.326	0.335	0.226	0.411	0.293	0.076	0.068
−90	0.355	0.366	0.257	0.412	0.300	0.046	0.043
−100	0.367	0.393	0.238	0.419	0.276	0.026	0.037

Number of observations per decile from EU-SILC

Percentile	Gross employment income	Total observations	Employed	Self-employed
0–7	0	680	0	0
−20	1,395	787	300	20–49
−30	3,525	629	501	60
−40	4,972	636	557	20–49
−50	6,470	653	602	20–49
−60	8,047	631	576	20–49
−70	9,888	623	569	20–49
−80	12,141	619	557	55
−90	15,425	625	569	20–49
−100	27,143	576	467	107

Effective and optimal variables for Lithuania

2^*percentile	Gross employment income	Net labor income^a	Net labor income^b	Percent of households^a	Percent of households^b	Average tax rate^a	Average >tax rate^b	Marginal tax rate^a	Marginal tax rate^b
0–7	0.0	2.1	0.6	6.9	0.9
−20	1.4	2.5	3.6	13.0	20.0	−81.2	−158.5	67.7	−112.4
−30	3.5	3.7	4.4	10.0	11.5	−4.1	−23.5	46.4	64.8
−40	5.0	4.6	4.9	10.0	10.7	7.4	0.8	35.4	60.1
−50	6.5	5.2	5.5	10.0	10.1	19.1	14.7	57.9	60.7
−60	8.0	6.3	6.2	10.0	9.8	21.9	23.6	33.4	60.1
−70	9.9	7.5	6.9	9.9	9.3	24.2	30.5	34.6	60.9
−80	12.1	8.8	8.0	10.1	9.4	27.8	34.1	43.3	49.7
−90	15.4	10.6	9.9	10.0	9.2	31.3	36.0	44.5	42.9
−100	27.1	18.6	15.9	10.0	9.1	31.3	41.4	31.3	48.7

Detailed equivalized income and net tax in Lithuania, percentage of gross employment income

Variable	Full sample (population)	Working sample (18–62, nonstudent)
Gross employee income	88	88
Gross self-employed income	12	12
Gross employment income	100	100
Old-age public transfer	12	4
Other public transfers	9	8
Gross labor income	121	113
Tax on income and social insurance contributions	−34	−34
Net labor income	86	78
Number of households	9,657	6,459

Average yearly equivalized income and net taxes in Lithuania, Euro

Variable	Full sample (population)	Working sample (18–62, nonstudent)
Gross employment income	7,663	8,952
Net taxes (minus)	1,045	1,944
Net labor income	6,618	7,008
Number of households	9,657	6,459

Ranges of elasticities of taxable income for Lithuania

	High income (w ≥ 12,000 Euro)	Low income (w < 12,000 Euro)
η	[0.2, 0.3, 0.5]	[0.2, 0.4, 0.6]
ɛ	[0.1, 0.2, 0.3]	[0.02, 0.1, 0.2]

eISSN:: 2193-9004
Language:: English

Publication timeframe:: Volume Open
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Statutory, effective, and optimal net tax schedules in Lithuania

Published Online: Jun 19, 2021

Page range: -

Accepted: Feb 16, 2021

DOI: https://doi.org/10.2478/izajolp-2021-0005

Keywords
Optimal tax schedule, effective tax schedule, statutory tax schedule, taxes, transfers, employees, self-employed, Lithuania

© 2021 Nerijus Cerniauskas et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Figure 1

Figure 2

Figure 3

Figure 4

Figure 5

Figure 6

Figure 7

Statutory equivalized gross employment income, net taxes, and net labor income in thousand Euro per year.

Intensive and extensive elasticities as proposed by Saez (2002)

Household average effective net tax rates in Lithuania, net taxes as a share of gross employment income. Sample restricted to households with 1 household member aged 18–62, but can include older and younger household members as well

Household average effective net tax rates in Lithuania, net taxes as a share of gross employment income

Household statutory average net tax rates in Lithuania, net taxes as a share of gross employment income.

Number of observations per decile from EUROMOD output

Estimated difference between statutory and effective tax schedules per equivalized household per year

Household statutory average net tax rates in Lithuania, net taxes as a share of gross employment income

Number of observations per decile from EU-SILC

Effective and optimal variables for Lithuania

Detailed equivalized income and net tax in Lithuania, percentage of gross employment income

Average yearly equivalized income and net taxes in Lithuania, Euro

Ranges of elasticities of taxable income for Lithuania

Statutory, effective, and optimal net tax schedules in Lithuania

Published Online: Jun 19, 2021

Page range: -

Accepted: Feb 16, 2021

DOI: https://doi.org/10.2478/izajolp-2021-0005

KeywordsOptimal tax schedule, effective tax schedule, statutory tax schedule, taxes, transfers, employees, self-employed, Lithuania

© 2021 Nerijus Cerniauskas et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Figure 1

Figure 2

Figure 3

Figure 4

Figure 5

Figure 6

Figure 7

Statutory equivalized gross employment income, net taxes, and net labor income in thousand Euro per year.

Intensive and extensive elasticities as proposed by Saez (2002)

Household average effective net tax rates in Lithuania, net taxes as a share of gross employment income. Sample restricted to households with 1 household member aged 18–62, but can include older and younger household members as well

Household average effective net tax rates in Lithuania, net taxes as a share of gross employment income

Household statutory average net tax rates in Lithuania, net taxes as a share of gross employment income.

Number of observations per decile from EUROMOD output

Estimated difference between statutory and effective tax schedules per equivalized household per year

Household statutory average net tax rates in Lithuania, net taxes as a share of gross employment income

Number of observations per decile from EU-SILC

Effective and optimal variables for Lithuania

Detailed equivalized income and net tax in Lithuania, percentage of gross employment income

Average yearly equivalized income and net taxes in Lithuania, Euro

Ranges of elasticities of taxable income for Lithuania

Keywords
Optimal tax schedule, effective tax schedule, statutory tax schedule, taxes, transfers, employees, self-employed, Lithuania