Employment Stimulating Tax Incentives in the Hungarian Labour Market

Abstract

Owing to a number of distinct groups in the labour force, the labour force participation rate in Hungary and most other Central European economies lags behind the European Union average. Empirical literature shows that tax policy can effectively incentivise the labour supply of these groups at the extensive margin. In this paper we discuss arguments for targeted employers’ tax reliefs from a labour market perspective. Based on household income, we analyse the attributes of households receiving the employ-ment tax credit phased out in 2012 and the targeted tax incentives implemented in the 2013 Job Protection Act. Our results show that numerous beneficiaries of the general employment tax credit live in households above the median income, while a higher share of low-income households benefit from the targeted incentives.