Effective Taxation of Risky Lifetime Personal Incomes

This paper introduces the design and test of a model, solved by statistical simulation, which describes and quantifies the effect of the tax system and lifelong income characteristics on the effective tax burden of a population or its segment. In the current application the model is structured and calibrated to analyze the category of employed persons in the Czech Republic. The system is shown to be mildly progressive, with a steep degression for very high incomes. It is also shown how the initial income endowment, lifelong income volatility and the minimum wage level impact the structure of effective tax rates, as well as expected unemployment.