Taxation and the Growth of Nonwage Compensation

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Abstract
Until recently, there have been no attempts to measure the influence of the income tax system on fringe benefits. A model is specified that links the tax system to fringe benefits. In addition, other determinants of the demand for and supply of fringe benefits are discussed. Using a time-series cross-section of establishment data, the influence of income taxes and other determinants on employer contributions to "voluntary" nonwage compensation is estimated. Using Tobit analysis, we find that higher marginal tax rates increase employer contributions to pensions and to life, accident, and health insurance. We also link our results to losses in federal tax revenues due to fringe benefits.