The ‘Law on Employment and Purchasing Power’ (known as the TEPA Law) of 1 October 2007 significantly reduced the tax burden on overtime. Its aim was to reduce labour costs in order to increase the number of hours worked and employees’ incomes. Cette étude effectue l’évaluation de son impact en comparant les changements, avant et après la réforme, dans le nombre d’heures travaillées par les travailleurs frontaliers avec ceux des travailleurs vivant près de la frontière mais travaillant en France. Les premiers n’ont pas été affectés par la réforme, tandis que les seconds l’
Tax relief on overtime
Cette étude effectue l'évaluation de l'impact de la réduction fiscale sur l' overtime introduite par la loi TEPA du 1er octobre 2007.
Reference IPP Policy Brief No. 1
Presentation
Key Results
The results indicate that the tax exemption on overtime has not fully achieved its objective: whilst the employees concerned did indeed receive additional pay, on average this was not due to working longer hours. The reform had no significant impact on the number of hours worked. Instead, it led to tax optimisation by skilled employees, who declared more overtime – in order to benefit from the tax exemption – but did not actually work any more hours.
- The 2007 TEPA Act proposes a tax exemption on overtime at an annual cost of 4.5 billion euros
- The number of overtime hours declared has certainly increased, but…
- …the law had no significant effect on the number of hours actually worked.
- This confirms the importance of basing tax measures on tax bases that are easily verifiable and controllable.
Key study
Cahuc, P. and Carcillo, S. (2011): “The Detaxation of Overtime Hours: Lessons from the French Experiment”, IZA Discussion Paper No. 5439.
Method and Data
This study is based on data from the INSEE Employment Survey
Pierre Cahuc
Stéphane Carcillo