The Effects of Overtime Tax on Hours Worked : Evidence from France

Income from overtime work is subject to income tax in most European countries. However, the effect of overtime tax introduction on hours worked has largely remained an unanswered question. This paper examines an unanticipated re-introduction of French overtime tax in 2012, by comparing full-time hours worked in larger and smaller firms. I find that overtime tax decreased actual hours worked, but increased overtime hours through higher reporting of overtime hours. The result is confirmed using synthetic control estimates for actual hours worked. Part-time and temporary workers increase their actual hours worked, but do not report more overtime hours. The literature has previously found that detaxation of overtime hours leads to very little effect on hours worked. Therefore, detaxation and retaxation of overtime hours lead to asymmetric effects