IPP Policy Brief n°1
Authors: Pierre Cahuc and Stéphane Carcillo
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The TEPA law of 1 October 2007 considerably reduced taxation on overtime. Its aim was to reduce labour costs in order to increase the number of hours worked and salaries earned.
This study evaluates the impact of the reform by comparing the change, since the law’s introduction, in the number of hours worked by employees who work across the border, with those who live near the border but work in France. The first were not affected by the reform while the second were. The results indicate that exempting overtime from taxation did not fully achieve its objective: while the employees concerned benefitted from increased earnings that did not come from working longer hours. The reform had no significant impact at all on the number of hours worked. It did, however, result in an increase in the overtime declared by skilled employees seeking to maximize the tax benefits it offered without actually working more hours.
- The 2007 TEPA law proposed a tax reduction on overtime, at an annual cost of 4.5 billion euros.
- The number of overtime hours certainly increased, but…
- …the law had no significant effect on the number of hours actually worked.
- This confirms the importance of selecting tax bases that can be easily measured and scrutinized by tax authorities